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ECJ case C-335/19 (E. Spzoo) – Judgment – Bad debts; Principles of fiscal neutrality and proportionality

On Oct 15, the ECJ issued his decision on ECJ case C-335/19 (E. Spzoo) related to Bad debts; Principles of fiscal neutrality and proportionality

For our previous coverage about this case, please click HERE.

Facts

This is a case where the Polish court asked if Poland is allowed to set the following conditions to its VAT bad debt rules:

  • on the date on which the service or goods are supplied and on the day preceding the date on which the tax return adjustment is filed
  • the debtor is not subject to insolvency or liquidation proceedings
  • the creditor and debtor are both trading and VAT registered?

Or does this breach the principles of fiscal neutrality and proportionality?

AG Opinion

Advocate General Kokott writes in her opinion:

The Polish legislator excludes this risk to tax revenue by allowing the revision of the tax liability of the supplier or service provider only if the customer is not yet in insolvency or liquidation proceedings at the time of the revision. As a result, the company that performed the service runs the risk of having to pay a tax debt for which it could not collect anything at all. It is for the Court to decide whether this is compatible with its function as a ‘tax collector on behalf of the State’.

However , the legitimate interest of the Republic of Poland and the Union to prevent the loss of VAT revenue can also be taken into account in another way. Therefore, the Court should take advantage of this request for a preliminary ruling to also rule on the timing of the adjustment of the input tax deduction on the customer, if he has so far not paid the consideration and therefore has no VAT burden.

The opinion of the AG is as follows:

Member States are not allowed to exclude the revision of the tax liability of the taxable person providing the services on the grounds that the customer is already in insolvency proceedings or in liquidation at the time of the performance of the performance or at the time of the revision. However, Article 185 (2) of the VAT Directive allows Member States to request a revision of input tax deductions in the event of incomplete payment already in the following tax period.

Decision

On Oct 15, 2020, the ECJ published its verdict, source Curia (currently only available in French or Polish). Unofficial translation:

Article 90 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding national rules which make the reduction of the taxable base subject to value added tax (VAT) on the condition that on the day of delivery of goods or provision of services, as well as on the day preceding the day of submitting the correction of the tax declaration aimed at taking advantage of this reduction, the debtor is registered as a VAT payer and was not in bankruptcy or liquidation proceedings, and the creditor was still registered as a VAT payer on the day preceding the day of submitting the correction of the tax return

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