On January 13, 2022, the ECJ issued its decision in the case C-156/20 (Zipvit Limited).
This case is about whether a taxable person, who received supplies of services which were at the time treated by Royal Mail as exempt, but which were (following case C-357/07) actually subject to VAT, was entitled to an input tax credit in respect of those supplies. Royal Mail did not charge VAT on its invoices to Zipvit (they mentioned that the supplies were exempt) and the contract was silent on VAT.
Context: Request for a preliminary ruling – Tax legislation – VAT – Directive 2006/112/EC – Article 168 and 178(a) – Origin of right of deduction in the case of an input mistakenly considered to be exempt – VAT included in the price despite the mistake – Time of origin of right of deduction – VAT due or paid – Possession of an invoice as a substantive requirement – Differentiation from the formal requirements for the right of deduction
Article in the EU VAT Directive
Article 168(a) of the VAT Directive 2006/112/EC (Right to deduct VAT)
Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
Two undertakings assume that a service is exempt – in accordance with the view taken by the tax authorities – and do so mutually, but incorrectly under EU law. Consequently, only a price without value added tax (VAT) is agreed and invoiced, and only that price is paid. Once the mistake has been discovered, the tax authorities ‘waive’ a recovery of tax from the supplier, not least for reasons of administrative simplification, because many of the recipients of the supply would have a right of deduction. From a fiscal point of view, this would only amount to a ‘zero-sum game’ involving a great deal of administrative effort on all sides. After the limitation period has expired at the level of the supplier, the recipient of the supply (in casu, Zipvit Ltd) exercises its right of deduction. However, since there is no invoice stating any VAT separately, the tax authorities refuse to allow the deduction.
Where (i) a tax authority, the supplier and the trader who is a taxable person misinterpret European VAT legislation and treat a supply, which is taxable at the standard rate, as exempt from VAT, (ii) the contract between the supplier and the trader stated that the price for the supply was exclusive of VAT and provided that if VAT were due the trader should bear the cost of it, (iii) the supplier never claims and can no longer claim the additional VAT due from the trader, and (iv) the tax authority cannot or can no longer (through the operation of limitation) claim from the supplier the VAT which should have been paid, is the effect of the Directive1 that the price actually paid is the combination of a net chargeable amount plus VAT thereon so that the trader can claim to deduct input tax under article 168(a) of the Directive as VAT which was in fact “paid” in respect of that supply?
Alternatively, in those circumstances can the trader claim to deduct input tax under article 168(a) of the Directive as VAT which was “due” in respect of that supply?
Where a tax authority, the supplier and the trader who is a taxable person misinterpret European VAT legislation and treat a supply, which is taxable at the standard rate, as exempt from VAT, with the result that the trader is unable to produce to the tax authority a VAT invoice which complies with article 226(9) and (10) of the Directive in respect of the supply made to it, is the trader entitled to claim to deduct input tax under article 168(a) of the Directive?
In answering questions 1 to 3:
is it relevant to investigate whether the supplier would have a defence, whether based on legitimate expectation or otherwise, arising under national law or EU law, to any attempt by the tax authority to issue an assessment requiring it to account for a sum representing VAT in respect of the supply?
is it relevant that the trader knew at the same time as the tax authority and the supplier that the supply was not in fact exempt, or had the same means of knowledge as them, and could have offered to pay the VAT which was due in respect of the supply (as calculated by reference to the commercial price of the supply) so that it could be passed on to the tax authority, but omitted to do so?
1. The ‘VAT due or paid’ referred to in Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax covers the VAT actually due from or paid by the supplier to the Member State.
2. It follows from Articles 73 and 78, taking into account Article 90 of Directive 2006/112, that the taxable amount for the supply of goods or services for consideration is the consideration actually received for them by the taxable person, which already includes VAT.
3. However, the right of deduction under Article 168(a) of Directive 2006/112 presupposes the supply of the goods or services and the possession of an invoice (Article 178(a) of Directive 2006/112) documenting the passing on of VAT. By contrast, a deduction of input tax is not possible without possession of an invoice stating the VAT separately.
4. The recipient of a supply who has not endeavoured to obtain a corresponding invoice stating the VAT separately within the limitation period under civil law cannot claim to deduct input tax against the tax authorities without such an invoice.
5. Since the right of deduction of the recipient of a supply is independent of the actual taxation of the service provider, it is irrelevant whether the supplier had a successful defence to its own taxation.
Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that value added tax (VAT) cannot be regarded as being due or paid, within the meaning of that provision, and is therefore not deductible by the taxable person, in the case where, first, that person and its supplier have mistakenly assumed, on the basis of an incorrect interpretation of EU law by the national authorities, that the supplies at issue were exempt from VAT and that, consequently, the invoices issued did not refer to it, in a situation where the contract between those two persons provides that, if that tax were due, the recipient of the supply should bear the cost of it, and, second, no step to recover the VAT was taken in good time, with the result that any action by the supplier and the tax and customs administration to recover the unpaid VAT is time-barred.
Zipvit sells vitamins and minerals by mail order. For this, Zipvit received invoices exempt from VAT under the national law from Royal Mail (the public postal service in the United Kingdom). However, the ECJ has delivered the TNT Post UK judgment , which shows that the exemption of Article 132(1)(a) of the VAT Directive does not apply to services provided by public postal services on individually negotiated terms.
Royal Mail has not attempted to recover the VAT wrongfully not charged from Zipvit or its other customers in the same situation, in particular because this would have entailed a heavy administrative burden and high costs and, secondly, because the Royal Mail tax authorities also did not additional assessment on the basis, in particular, of the legitimate expectations that had been created. Moreover, because the limitation periods have now expired, the tax authorities and Royal Mail are no longer able to take any steps in that direction.
Taking the view that, in retrospect, it should be assumed that the payments to Royal Mail included VAT, Zipvit submitted a request for deduction of input tax to the tax authorities. This request was rejected because the services in question were not subject to VAT and Zipvit had not paid this tax.
VAT cannot be considered due or paid within the meaning of Article 168(a) of the VAT Directive and thus by being deductible by the taxable person where, first, the taxable person and his supplier or service provider wrongly considered, on the basis of an incorrect interpretation of EU law by the national authorities, that the services in question were exempt from VAT, so that VAT is not charged stated in the invoices issued, whereby the agreement concluded between those two persons stipulates that the recipient of the supply or service must bear the VAT if VAT is due, and secondly, if steps have not been taken in time to collect the VAT, as a result of which the supplier or service provider and the tax authorities can no longer collect the VAT not charged due to limitation.
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