Flashback on ECJ Cases C-152/02 (Terra Baubedarf-Handel) – 2 Conditions to deduct VAT, transaction took place and invoice is available

On April 29, 2004, the ECJ its decision in the case C-152/02 (Terra Baubedarf-Handel). The ECJ decided that 2 Conditions need to be fulfilled to exercise the right to deduct VAT, namely, that the goods have been delivered or the services performed (substantial condition) and that the taxable person holds the invoice or the document which, under the criteria determined by the Member State in question, may be considered to serve as an invoice (formal condition)

Context: Sixth VAT Directive – Article 17(1) and Article 18(1) and (2) – Right to deduct input VAT – Conditions of exercise

Article in the EU VAT Directive

Article 17(1) and 18(1)(a) of Directive 77/388/EEC (Articles 167 and 178 of the EU VAT Directive 2006/112/EU).

Article 17

1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person;’.

Article 18(1) and (2) of the Sixth Directive state:

1. To exercise his right to deduct, the taxable person must:

(a) in respect of deductions under Article 17(2)(a), hold an invoice, drawn up in accordance with Article 22(3);

Facts

Terra Baubedarf, a German company trading in building supplies, obtained supplies of services in 1999. However, the invoices relating to those services, although drawn up in December 1999, were not received by it until January 2000.
The Finanzamt did not allow the deduction of the VAT paid by Terra Baubedarf for 1999 in respect of those services on the grounds that, under Paragraph 15(1)(1) of the UStG and the fourth sentence of Section 192(2) of the UStR, the right to deduct could only be exercised in the case in point in respect of the year 2000, the year in which the relevant invoice was received.
The objection and subsequent action brought before the Niedersächsisches Finanzgericht (Germany) by Terra Baubedarf were unsuccessful. That court confirmed the view of the Tax Office.
Terra Baubedarf then brought an appeal on a point of law (‘Revision’) against that decision before the Bundesfinanzhof, claiming that a time- limit had been placed on its right to deduct the input VAT paid, in breach of the Sixth Directive.
The Bundesfinanzhof observes that, according to the case-law of the Court, Terra Baubedarf’s right to deduct arose in 1999 in accordance with Article 17 of the Sixth Directive, and that, in accordance with Article 18 of the Sixth Directive, that right could not be exercised until 2000, after receipt of the invoice (see, inter alia, Case C-85/95 Reisdorf [1996] ECR I-6257, paragraph 22).
The national court is uncertain, however, whether that right to deduct may or must be claimed and produce its effect as from the 1999 tax year. Article 18(1)(a) of the Sixth Directive could be interpreted as meaning that it merely lays down the conditions governing the exercise of the right to deduct, but is silent as to the tax years in respect of which the deduction must or may be claimed.

Questions

Can a taxable person exercise his right to deduct only in respect of the calendar year in which he holds an invoice pursuant to Article 18(1)(a) of Directive 77/388/EEC or must the right to deduct always be exercised (even if retrospectively) in respect of the calendar year in which the right to deduct pursuant to Article 17(1) of Directive 77/388/EEC arose?

AG Opinion

Article 18 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes ─ Common system of value added tax: uniform basis of assessment is to be interpreted as meaning that the right to deduct input tax must be exercised in respect of the calendar year in which the right to deduct pursuant to Article 17(1) of the Sixth Directive arose.

Decision

For the deduction referred to in Article 17(2)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, the first subparagraph of Article 18(2) of the Sixth Directive must be interpreted as meaning that the right to deduct must be exercised in respect of the tax period in which the two conditions required by that provision are satisfied, namely that the goods have been delivered or the services performed and that the taxable person holds the invoice or the document which, under the criteria determined by the Member State in question, may be considered to serve as an invoice.

Summary

Two conditions for the Right to Deduct VAT

goods have been delivered or the services performed and
that the taxable person holds the invoice or the document which, under the criteria determined by the Member State in question, may be considered to serve as an invoice

Source