Flashback on ECJ Cases – C-525/11 (Mednis) – Tax authorities may not defer the refund of part of the VAT surplus until examination of the taxpayer’s annual tax return

On October 18, 2011, the ECJ issued its decision in the case C-525/11 (Mednis).

Context: VAT – Directive 2006/112/EC – Article 183 – Conditions for the refund of the excess VAT – National legislation deferring the refund of part of the excess VAT pending examination of the taxable person’s annual tax return – Principles of fiscal neutrality and proportionality

Article in the EU VAT Directive

Article 183 of the EU VAT Directive 2006/112/EC.

Article 183 (Rules governing exercise of the right of deduction)
Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.
However, Member States may refuse to refund or carry forward if the amount of the excess is insignificant.

Facts

On 7 and 14 December 2007, Mednis applied to the VID for a refund amounting in total to LVL 2 081.79, corresponding to excess VAT paid for November 2007.
Of that total amount, the VID refused to refund LVL 1 455.82. Taking as its legal basis Article 285 of Decree No 933, the VID adopted Decision No 19/11599 of 22 April 2008 (‘the contested decision’), in which it stated as the grounds for that refusal the fact that, during the period to which the excess VAT related, part of that excess tax was over 18% of the total value of the taxable transactions carried out in the months at issue.
Mednis brought an action before the Administratīvā rajona tiesa (District Administrative Court) for annulment of the contested decision.
By judgment of 7 July 2009, the Administratīvā rajona tiesa dismissed that action, holding that the VID’s refusal to refund Mednis all of the excess VAT was consistent with Article 285 of Decree No 933.
By judgment of 3 June 2010, the Administratīvā apgabaltiesa (Regional Administrative Court) dismissed Mednis’ appeal. It adopted the grounds stated at first instance, adding that the deferral of the deadline by which the VID had to refund the excess VAT to the taxable person has a legitimate objective relating to the Treasury’s interest in having the taxable person’s right to a VAT refund limited where it is found that the amount of tax paid to the Treasury is significantly lower than the amount which the Treasury must refund.
Mednis lodged an appeal on a point of law against that judgment before the Augstākās tiesas Senāts.
The referring court observes that, under Article 285 of Decree No 933, as applied by the VID in practice, where it is ascertained that the excess VAT is over the percentage specified in that provision, the part of the excess which is over that percentage is not to be repaid to the taxable person until the VID has examined that person’s annual tax return. Depending on the circumstances, the taxable person may be required to wait over a year for a refund of excess VAT simply because that excess is over the general VAT rate.
The referring court has doubts as to whether the legislation and the practice concerned are consistent with the principles of fiscal neutrality and proportionality devolving from Article 183 of Directive 2006/112 given that, by dint of that legislation and practice, the decision to defer the VAT refund is adopted without any examination of the circumstances of the case and without account being taken of the waiting period pending examination of the annual return.

Questions

Does Article 183 of … Directive 2006/112 … give a Member State the right, without carrying out any specific analysis and solely on the basis of an arithmetical calculation, not to refund that part of the excess tax that is over 18% (the standard rate of VAT) of the total value of the taxable transactions carried out in the corresponding monthly tax periods until the State tax authority has received the annual return of the person subject to VAT?

AG Opinion

None

Decision

Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not authorising the tax authority of a Member State to defer, without undertaking a specific analysis and solely on the basis of an arithmetical calculation, the refund of part of the excess VAT which has arisen during a one-month tax period, pending the examination by that authority of the taxable person’s annual tax return.

Summary

National legislation deferring the refund of part of the VAT surplus until examination of the taxpayer’s annual tax return – Principle of fiscal neutrality and proportionality

The tax authority of a Member State may not, without specific analysis, postpone the refund of part of a surplus of VAT that has arisen in a tax period of one month on the basis of an arithmetic calculation alone, until it has examined the annual tax return of the taxpayer.

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