Flashback on ECJ Cases C-138/12 (Rusedespred OOD) – Neutrality principle – Refund to the supplier of tax paid where the recipient under an exempt transaction is refused a right of deduction

On April 11, 2013, the ECJ issued his decision in the case C-138/12 (Rusedespred OOD) related to a Refund to the supplier of tax paid where the recipient under an exempt transaction is refused a right of deduction. This case examines the possibility to obtain a refund of VAT invoiced in error, subject to the condition that the invoice is corrected. The CJEU determined that a condition attached to a claim for reimbursement must not be impossible to satisfy and the principle of neutrality can be relied on.

Article in the EU VAT Directive

Article 203 of the EU VAT Directive 2006/112/EC

Article 203

VAT shall be payable by any person who enters the VAT on an invoice.

Facts

Supplier has sent an invoice to customer with VAT, although the transaction was VAT exempted
The customer was refused VAT deduction as it was an exempt transaction
The supplier tried to recover the output VAT from the authorities
Authorities refused to refund VAT to the supplier as VAT was shown on the invoice (art. 203)
A corrected invoice could not longer be issued as per per local VAT law

Questions

1. Is a taxable person entitled, in accordance with the principle of neutrality, to claim a refund of incorrectly invoiced and undue VAT within the limitation period laid down where, under national law, the transaction in respect of which he has charged the tax is exempt from VAT, the risk of any loss of tax revenue has been eliminated and the provision of national law governing the correction of invoices is inapplicable?

2. Do the common system of value added tax and the principles of neutrality, effectiveness and equal treatment preclude the refusal by a revenue authority, on the basis of a national provision transposing Article 203 of Council Directive 2006/112 of 28 November 2006 on the common system of value added tax, to refund to a taxable person the VAT which that person has entered on an invoice where that tax is not owed, because the transaction in question is exempt from VAT, but was invoiced, charged and paid in error, in so far as the purchaser of the goods or recipient of the service has already been refused the right to deduct tax in respect of the same transaction by a final tax assessment notice on the ground that the supplier of goods or services charged the tax unlawfully?

3. Can a taxable person rely directly on the principles governing the common system of value added tax, in particular the principles of tax neutrality and effectiveness, in order to object to a national provision or its application by the tax authorities or the courts in breach of the aforementioned principles or to the failure by a national provision to observe those principles?

AG Opinion

None

Decision

1. The principle of the neutrality of value added tax, as given specific definition by the case-law relating to Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as precluding a tax authority from refusing, on the basis of a provision of national law intended to transpose that article, the supplier of an exempt supply the refund of value added tax invoiced in error to a customer on the ground that the supplier had not corrected the erroneous invoice, in circumstances where that authority had definitively refused the customer the right to deduct that value added tax and such definitive refusal results in the system for correction provided for under national law no longer being applicable.

2. The principle of the neutrality of value added tax, as given specific definition by the case-law relating to Article 203 of Directive 2006/112, may be relied on by a taxable person in order to contest a provision of national law that makes the refund of value added tax invoiced in error conditional on the correction of the incorrect invoice, in circumstances where the right to deduct that value added tax has definitively been refused and such definitive refusal results in the system for correction provided for under national law no longer being applicable.

Comments

Neutrality principle :

The principle is a fundamental principle of the common system of VAT as governed by the VAT Directive
A tax authority can not refuse repayment of VAT in case (1) local law does not allow to issue a corrected invoice and (2) the customer had no right to deduct VAT
The Court recalled that according to case-law, the principle of the neutrality of VAT may be relied on by a taxable person against a provision of national law

The principle of neutrality prevents the tax authorities from refusing the person who made an exempt supply the refund of the VAT invoiced to his customer on the ground that this supplier has not corrected the incorrect invoice, while the tax authorities entitle the customer permanently denied deduction of that VAT, as a result of which the national legal correction scheme no longer applies.

A taxable person may rely on the principle of neutrality to oppose a provision of national law that makes it a condition for the refund of VAT invoiced in error that the incorrect invoice has been corrected, while the right to deduct that VAT has been definitively refused, thereby the national legal correction scheme no longer applies.

Source