On March 3, 2021, the ECJ issued its order in the case C-507/20 (FGSZ) related to the Starting Date of Limitation Period for Adjustment of Taxable Amount in Case of Bad Debt.
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 90 – Reduction of the taxable amount – Total or partial non-payment of the price – Debt which has become definitively irrecoverable – Limitation period regarding applications for a subsequent reduction in the taxable amount of VAT– Date on which time starts to run
Article in the EU VAT Directive
Article 90(1) of the EU VAT Directive 2006/112/EC
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
- Between October 2010 and January 2011, FGSZ sent EMFESZ Kft., a partner company (‘the debtor company’), several invoices including VAT for the period from October 2010 to January 2011. During 2011, FGSZ declared and paid the VAT on those invoices to the tax authority.
- Before those invoices were paid, the debtor company was subject to winding up proceedings, including the proceedings commenced on 28 January 2014 by the Fővárosi Törvényszék (Budapest-Capital Court, Hungary). The debt arising from those invoices was declared by FGSZ, since on 7 May 2018, the liquidator of the debtor company confirmed its admissibility. On December 13, 2019, the liquidator recorded that the debt had become irrecoverable.
- On 19 December 2019, FGSZ filed an application for the recovery of the VAT in respect of those invoices and for the payment of interest for late payment.
- By decision of 24 January 2020, the first tier tax authority refused to grant that request, on the ground that the limitation period of five years provided for by national law had expired on 31 December 2016.
- FGSZ lodged a complaint against that rejection decision before the Appeals Department, which was dismissed on 3 March 2020. The Appeals Directorate pointed out that, although Article 90(1) of the VAT Directive provides that the taxable amount is to be reduced where, as in the main proceedings, the VAT relating to invoices has not been paid, it is, however, for the Member States to determine the conditions under which that reduction is to be made. On that basis, it took the view that Member States could provide that the right to obtain a reduction of the taxable amount was subject to a limitation period. According to the Appeals Division, that period should start to run from the date on which the payment obligation is to be performed, that is the date mentioned in the invoices.
- FGSZ brought an action against the decision of 3 March 2020 before the referring court. It argued, essentially, on the basis of the judgments of 21 March 2018, Volkswagen (C‑533/16, EU:C:2018:204), and of 12 April 2018, Biosafe – Indústria de Reciclagens (C‑8/17, EU:C:2018:249), that the limitation period should begin to run, not from the date on which the payment obligation originally provided for was to be fulfilled, but from the date on which the debt became irrecoverable.
Does the practice of a Member State, pursuant to which the latter, relying on the ex tunc effects of the reduction applicable to the taxable amount in the event of definitive non-payment in accordance with Article 90(1) of the VAT Directive, 1 calculates the general limitation period of five years laid down by that Member State – during which period the reduction may be applied to the taxable amount – from the time of the initial supply of goods and not from the time when the debt concerned has become irrecoverable and, relying on the expiry of that limitation period, deprives the taxable person acting in good faith of his or her right to a reduction of the taxable amount in the case of debts which have become definitively irrecoverable, under circumstances in which a number of years may have elapsed between the time of the supply of goods and the time when the debt became definitively irrecoverable and in which, at the time when the debt became definitively irrecoverable, the Member State’s legislation, unlike EU law, did not permit the reduction of the taxable amount in the case of debts that had become definitively irrecoverable, comply with the fundamental principles of proportionality, fiscal neutrality and effectiveness, particularly in the light of point 63 of the Opinion of the Advocate General in Biosafe – Indústria de Reciclagens (C-8/17), paragraph 27 of the judgment in Di Maura (C-246/16) and paragraph 36 of the judgment in T-2 (C-396/16), and having regard to the fact that a Member State may not charge an amount of VAT exceeding the tax collected by the supplier of goods or services in respect of the goods or services supplied?
Article 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with the principles of fiscal neutrality and effectiveness, must be interpreted as meaning that, where a Member State lays down a limitation period after which a taxable person, who has a debt which has become definitively irrecoverable, can no longer assert his right to obtain a reduction in the taxable amount, that limitation period must begin to run not from the date of performance of the payment obligation initially provided for, but from the date on which the debt became definitively irrecoverable.