ECJ C-377/23 (Sancra) – Order – VAT assumed to be included in wrongly 0% rated invoice

On February 5, 2024, the ECJ issued its Order in the case C-377/23 (Sancra).

Summary

In this case, DC, a seller of second-hand motor vehicles, mistakenly applied a zero VAT rate on the invoices to final consumers instead of the normal VAT rate. The tax administration rectified this by determining the VAT due based on the corrected rate. DC challenged the VAT refunds resulting from the tax audit, arguing that the tax base for VAT should be calculated based on the sales price mentioned on the invoice, which already includes VAT.

The referring court sought clarification on whether the price/amount indicated on the invoices should be considered as already including VAT or if VAT should be added to it, taking into account the provisions of Directive 2006/112 and the principle of fiscal neutrality.

The Court’s order states that, in this specific case, the price/amount indicated on the invoices should be considered as already including VAT, unless national law allows the taxable person to pass on and recover the VAT corresponding to the corrected rate from the final consumers. This interpretation is based on Articles 73 and 78 of Directive 2006/112, which aim to ensure that VAT burdens only the final consumer and that the tax base cannot exceed the consideration actually paid by the consumer.

The Court emphasizes that this case is different from previous cases where VAT was not indicated on the invoices. Here, DC included references to the relevant VAT provisions and the tax administration did not establish that the invoices did not include VAT in the price of sales received from the final consumers.

Therefore, in the absence of specific provisions allowing DC to pass on and recover the corrected VAT rate, the price/amount indicated on the invoices should be considered as already including VAT.

Context

Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court – Answer which can be clearly deduced from the case-law – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Tax audit – Sale of second-hand vehicles to final consumers – Transactions subject to VAT – Articles 73 and 78 – Tax base – Principle of fiscal neutrality – Incorrect invoicing of a zero rate of VAT – Application of the normal rate of VAT by the tax administration – Inclusion of the VAT due in the sale price

Article in the EU VAT Directive

Articles 73 and 78 of the EU VAT Directive 2006/112/EC.

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Article 78
The taxable amount shall include the following factors:
(a) taxes, duties, levies and charges, excluding the VAT itself;
(b) incidental expenses, such as commission, packing, transport and insurance costs, charged by the supplier to the customer.
For the purposes of point (b) of the first paragraph, Member States may regard expenses covered by a separate agreement as incidental expenses.

Facts

DC carries out an economic activity consisting of the sale to final consumers of second-hand motor vehicles. Considering that the sales of these vehicles were subject to the specific VAT regime applicable to second-hand goods, DC appeared on the invoices corresponding to these sales the words “Article 16, paragraph 6, [Código do Imposto sobre o Valor Accrescentado (code value added tax) (CIVA)]” or “Margin regime – second-hand goods” as well as the “0%” VAT rate.
During an inspection, the tax administration considered that the operations carried out by DC should have been subject to the normal VAT regime in that they related to “new” means of transport, within the meaning of Article 2(2)(b) of Directive 2006/112. Consequently, it made a rectification by determining the VAT due by applying a VAT rate of 23% to the amount indicated on the sales invoices sent by DC to final consumers.
DC challenged the VAT refunds resulting from this tax audit before the Tribunal Central Administrativo Sul (Central Administrative Court of the South, Portugal). His appeal having been rejected by a judgment delivered on November 10, 2022, he lodged an appeal before the referring court.
The latter emphasizes that the question which is the subject of the dispute in the main proceedings concerns only the determination of the tax base for VAT. In this regard, DC maintains that the tax must be calculated by considering the sales price mentioned on the invoice and not, as the tax administration estimated, as a price excluding VAT which must be increased by it, but as a price that already includes VAT. It specifies that it is no longer able to pass on VAT to final consumers, due to the lack of a VAT regularization mechanism enabling it to do so. He concludes that the method applied by the tax administration would involve increasing the sales price appearing on the invoice by the amount of VAT, in violation of Articles 73 and 78 of Directive 2006/112, as well as the principle of fiscal neutrality. , as interpreted by the Court.
The referring court expresses doubts as to the compatibility of the method used by the tax administration with Union law. It observes that it can easily be deduced from the Court’s judgments that VAT is intended to burden only the final consumer and that the tax base for the VAT to be collected by the tax authorities cannot be greater than the consideration actually paid. by this one. These judgments would argue, as DC maintains, in favor of calculating VAT on the basis of a sales price already including this tax.
However, according to the referring court, the present case differs from those which have been the subject of the Court’s case-law, characterized by the absence of indication of VAT on the invoices or by the absence of an invoice, because, in this case, DC mentioned, on the invoices, as is clear from point 8 of this order, “Article 16, paragraph 6, CIVA” or “Margin regime – Second-hand goods”, as well as, with regard to the VAT rate, “0%”, and the tax administration considered that it had not been established that “the invoices do not include VAT in the price of sales received from the final consumer.

Questions

Taking into account the particular circumstances of the present case, and having regard to the provisions of Articles 73 and 78 of Directive [2006/112] as well as the principle of fiscal neutrality, is it consistent with Union law to consider that the price/amount indicated on the invoices already includes VAT, or should it be considered that this is an amount to which VAT must be added?

AG Opinion

None

Decision (Order)

Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Article 78(a) and Article 2, paragraph 2(b) of that directive,

must be interpreted in the sense that:

when a person subject to value added tax (VAT) wrongly included a zero VAT rate on the invoices he sent to final consumers, when a higher rate was applicable, the price or the amount indicated on these invoices must nevertheless be considered as a price already including VAT, unless, under national law, the taxable person has the possibility of passing on to final consumers and recovering from them the VAT corresponding to the application of the corrected rate.

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