In this case, the Supreme Administrative Court of Portugal referred a question to the Court of Justice of the European Union (CJEU) regarding the deduction of VAT on invoices that did not comply with formal requirements. The tax administration in Portugal claimed that the invoices contained insufficient descriptions of the services provided and were based on simulated transactions. The referring court sought clarification on whether the invoices met the formal requirements set out in the VAT Directive and whether the tax administration could refuse the right to deduct VAT based on the invoice descriptions.
The CJEU determined that the formal conditions for the right to deduct VAT should not be used to refuse the deduction if the material conditions are satisfied. The court emphasized that the right to deduct VAT is a fundamental principle of the common VAT system and should not be limited, even if certain formal conditions have been omitted by the taxable person. The objective of invoice information is to enable tax administrations to monitor tax payment and the right to deduct VAT. The CJEU further noted that the tax administration should take into account any additional information provided by the taxable person.
The CJEU stated that the tax administration cannot impose additional conditions that reduce the exercise of the right to deduct VAT. However, the deduction can be refused if the violation of formal conditions prevents the provision of proof that the material conditions are satisfied or if the deduction is invoked fraudulently or abusively. In this case, the simulation of transactions was not demonstrated, and the CJEU held that the tax administration could not refuse the right to deduct VAT based on the invoice descriptions.
Therefore, the CJEU concluded that the VAT Directive precludes national tax authorities from refusing the right to deduct VAT based on invoices that do not comply with formal requirements, such as generic descriptions of services. The referring court will need to verify whether the material conditions for the right to deduct VAT are satisfied based on the facts of the case.
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See also
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