On November 11, 2021, the ECJ issued its decision in the case C-281/20 (Ferimet, S. L.) – Decision – No Input VAT deduction for self-invoice with reverse charge VAT with fictitious supplier.
The court case develops an interesting argumentation on the Right to Deduct VAT, and more specifically when there is a suspicion that fraud is involved.
In a series of newsitems, we will highlight some interesting obeservations from the decision of the Court.
- Part 1 dealt with regard to the Formal vs. Material requirements of the Right to deduct VAT.
- Part 2: ”naming” and ” status” of the supplier, formal or material condition for the right to deduct VAT
In part 3, we will have a look at the Rules of the exercise of the right to deduct VAT in the reverse charge procedure (Art. 199(1) of Directive 2006/112/EC). This article refers to the Liability to pay VAT, where the customer is liable to pay VAT via reverse-charge.
Article 199 (1) – Persons liable for payment of VAT to the tax authorities
1. Member States may provide that the person liable for payment of VAT is the taxable person to whom any of the following supplies are made:
(a) the supply of construction work, including repair, cleaning, maintenance, alteration and demolition services in relation to immovable property, as well as the handing over of construction works regarded as a supply of goods pursuant to Article 14(3);
(b) the supply of staff engaged in activities covered by point (a);
(c) the supply of immovable property, as referred to in Article 135(1)(j) and (k), where the supplier has opted for taxation of the supply pursuant to Article 137;
(d) the supply of used material, used material which cannot be re-used in the same state, scrap, industrial and non industrial waste, recyclable waste, part processed waste and certain goods and services, as listed in Annex VI;
(e) the supply of goods provided as security by one taxable person to another in execution of that security;
(f) the supply of goods following the cession of a reservation of ownership to an assignee and the exercising of this right by the assignee;
(g) the supply of immovable property sold by a judgment debtor in a compulsory sale procedure.
Point 28 in the Decision of the ECJ: As regards specifically the rules governing the exercise of the right to deduct VAT in the reverse charge procedure under Article 199(1) of Directive 2006/112, it must be added that a taxable person who is liable as the purchaser of an item of property for the VAT relating thereto is not required to hold an invoice drawn up in accordance with the formal requirements of that directive in order to be able to exercise his or her right to deduct, and only has to fulfil the formalities laid down by the Member State concerned in the exercise of the option conferred by Article 178(f) of that directive (judgment of 26 April 2017, Farkas, C‑564/15, EU:C:2017:302, paragraph 44 and the case-law cited).
Article 178(f) – Rules Governing Exercise of the Right of Deduction
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(f) when required to pay VAT as a customer where Articles 194 to 197 or Article 199 apply, he must comply with the formalities as laid down by each Member State.