ECJ Case C-453/22 (Schütte)- Judgment – Claim for reimbursement of excess VAT paid to suppliers even after statutory limits are passed

On September 7, 2023, the ECJ issued its judgment in the case C-453/22 (Schütte).

Context: ‘Reference for a preliminary ruling – Common system of VAT – Directive 2006/112/EC – Principle of neutrality of VAT – Principle of effectiveness – Excessive VAT rate on a purchase invoice – Refund of the overpaid amount – Direct action against the administration – Effect of the risk of double reimbursement of the same VAT

Summary

Facts of the Case: Michael Schütte, a farmer and forester, purchased timber and sold it as firewood, incorrectly applying a reduced VAT rate of 7% instead of the standard rate of 19% on his sales. After an audit, the German tax authorities demanded recovery of the overpaid VAT, leading Schütte to seek reimbursement from the tax office, as his suppliers refused to correct invoices citing limitation periods.
Questions Presented to the Court: The central question was whether the VAT Directive requires a receiver of supplies to have the right to claim reimbursement of improperly invoiced VAT directly from tax authorities, despite the possibility that suppliers might later claim the same reimbursement.
Court’s Decision: The Court ruled that Schütte has a direct right to claim reimbursement of improperly paid VAT from the tax authorities, along with interest, due to the impossibility of recovering the amount from suppliers within the limitations of national law.
Justification for the Decision: The Court emphasized the principles of VAT neutrality and effectiveness, stating that failing to allow direct reimbursement from tax authorities would contravene these principles. It noted that if suppliers could later claim the overpaid VAT after Schütte’s reimbursement, this would not constitute a risk of double reimbursement as it would be considered an abusive claim.
Implications of the Ruling: This judgment reinforces the rights of taxpayers under EU VAT law, ensuring that they can seek reimbursement for improperly invoiced VAT directly from tax authorities when suppliers are uncooperative. It underscores the importance of the principles of neutrality and effectiveness in VAT administration, promoting fair treatment for taxable persons in similar situations.

Article in the EU VAT Directive

Articles 167, 168, 178, 203 of the EU VAT Directive 2006/112/EC.

Article 167 (Origin and scope of right of deduction)
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168
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;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 178 (Rules governing exercise of the right of deduction)
In order to exercise the right of deduction, a taxable person must meet the following conditions:
(a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;
(b) for the purposes of deductions pursuant to Article 168(b), in respect of transactions treated as the supply of goods or services, he must comply with the formalities as laid down by each Member State;
(c) for the purposes of deductions pursuant to Article 168(c), in respect of the intra-Community acquisition of goods, he must set out in the VAT return provided for in Article 250 all the information needed for the amount of VAT due on his intra-Community acquisitions of goods to be calculated and he must hold an invoice drawn up in accordance with Sections 3 to 5 of Chapter 3 of Title XI;
(d) for the purposes of deductions pursuant to Article 168(d), in respect of transactions treated as intra-Community acquisitions of goods, he must complete the formalities as laid down by each Member State;
(e) for the purposes of deductions pursuant to Article 168(e), in respect of the importation of goods, he must hold an import document specifying him as consignee or importer, and stating the amount of VAT due or enabling that amount to be calculated;
(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.

Article 203 (Persons liable for payment of VAT to the tax authorities)
VAT shall be payable by any person who enters the VAT on an invoice.

Facts

The plaintiff is a farmer and forester and (among other things) operates a commercial trade in timber.
In the years 2011 to 2013, the plaintiff purchased the timber from his upstream suppliers, with whom he had net agreements, with the VAT in the respective invoices at the standard rate of 19%.
The plaintiff subsequently sold and delivered the timber to his customers under tax rate of 7% as firewood.
The upstream suppliers each declared the turnover and paid the 19% tax to the tax authorities.
The plaintiff declared output sales at only 7% and for his part deducted the input tax from the deliveries in the amount of 19%. The resulting tax liability was paid by the plaintiff to the tax authorities.
The plaintiff was at no time in danger of becoming insolvent. There is no suspicion of fraud

Questions

The provisions of Directive 2006/112/EC – in particular the principle of tax neutrality and the principle of effectiveness – in the circumstances of the main proceedings, that the applicant is entitled to a claim for reimbursement of the excess VAT paid by him to his upstream suppliers, including interest, directly against the tax authority, even if there is still the possibility that the tax authority might be claimed by the sub-suppliers due to a correction of the at a later point in time due to a correction of the invoices, and then – possibly – no longer have recourse to the plaintiff, so that there is a risk that the tax authority will have to refund the same VAT twice?

AG Opinion

None

Decision

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, and the principle of value added tax (VAT) neutrality and the principle of effectiveness

must be interpreted as requiring that a receiver of supplies of goods has a direct right to claim from the tax authorities the reimbursement of improperly invoiced VAT paid to his or her suppliers and paid by those suppliers to the public purse, together with related interest, in circumstances where, first, that receiver cannot be criticised for fraud, abuse or negligence but cannot claim that reimbursement from those suppliers due to the limitation period provided for by national law and, second, there is a procedural possibility of those suppliers subsequently claiming reimbursement of the overpaid tax from the tax authorities after having adjusted the invoices that were issued initially to the receiver of those supplies. Failing reimbursement of the VAT improperly charged by the tax authorities within a reasonable time, the damage suffered on account of the unavailability of the amount equivalent to that improperly charged VAT must be compensated by the payment of default interest.

Source

Curia

Other ECJ cases referred to:

Fatorie (C-424/12): This case established the principle that the right of deduction in the VAT system is integral and cannot be limited. It reinforced that the VAT system should relieve taxable persons of the burden of VAT in their economic activities.
Terracult (C-835/18): The Court emphasized that claims for repayment of improperly overpaid VAT are essential to offset the economic burden that the tax has improperly imposed. This case underscored the necessity of recovering sums paid but not due.
Reemtsma Cigarettenfabriken (C-35/05): This judgment confirmed that national rules must not render it virtually impossible to exercise rights conferred by EU law. It supported the idea that if reimbursement becomes excessively difficult, direct claims against tax authorities may be necessary.
Farkas (C-564/15): The Court reiterated that Member States are obliged to provide mechanisms enabling taxpayers to recover improperly invoiced VAT, thereby ensuring compliance with the principles of VAT neutrality and effectiveness.
Zipvit (C-156/20): This case was referenced to clarify that a claim for VAT cannot be made if the taxable person has not been charged for that amount. It distinguished between cases where a supply was incorrectly exempted and the current case involving improperly charged VAT.
HUMDA (C-397/21): This judgment highlighted that individuals are entitled to reimbursement not only of unduly levied taxes but also of related amounts, including interest. It reinforced the notion that financial losses due to improper taxation should be compensated.
Halifax and Others (C-255/02): The Court defined conditions for determining abusive practices in VAT claims, emphasizing that transactions yielding undue tax advantages could be deemed abusive, thus denying reimbursement in such cases.
EMS-Bulgaria Transport (C-284/11): This case stressed the importance of proportionality in denying the right to reimbursement, indicating that a blanket refusal would be disproportionate when no fraud or state budget detriment is established.