ECJ C-314/22 (Consortium Remi Group’ AD) – Judgment – Member states can impose a preclusion period for VAT refund requests due to non-payment

On February 29, 2023, the ECJ issued the judgment in the case ECJ 314/22 (Consortium Remi Group’ AD).

Context: Reference for a preliminary ruling – Common system of value added tax – Directive 2006/112/EC – Taxable amount – Reduction of the taxable amount – Total or partial non-payment of the price after the transaction has taken place – Option to derogate available to Member States under Article 90(2) of the VAT Directive – Direct applicability of Article 90(1) of the VAT Directive – Limitation period – Start of the limitation period – Point at which the taxable amount is reduced – Reduction not retroactive – Taxable person’s entitlement to interest

Article in the EU VAT Directive

Article 90 of the EU VAT Directive 2006/112/EC.

Article 90 (Taxable amount – Miscellaneous provisions)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.

Facts

Consortium Remi Group’ AD (‘CRG’) with registered office in Varna (Bulgaria) is engaged in the construction of buildings and facilities. It was registered under the ZDDS in 1995, but was deregistered on 7 March 2019 as it was found to have systematically breached its obligations under the ZDDS. By judgment of the Varnenski Okrazhen sad (Regional Court, Varna) of 18 September 2020, the company was declared insolvent and insolvency proceedings were commenced.
In 2006 to 2010 and 2012, CRG issued invoices to five Bulgarian companies for the supply of goods and the provision of services. VAT was charged on the invoices and that tax was paid for most of the taxable periods. The total amount of CRG’s VAT receivables according to those invoices is 618 171 leva (BGN).
By tax assessment notice dated 31 January 2011, CRG’s liabilities under the ZDDS for the period from 1 January 2007 to 1 July 2010 were established, hincluding the VAT charged in the invoices issued to one of the abovementioned companies ( ‘Company A’). CRG brought an action against the notice, which was, however, dismissed by a judgment of the administrative court at first instance, whose decision was in turn upheld by a judgment of the Varhoven administrative sad (Supreme Administrative Court).
CRG then went on to apply to the revenue authorities to set off an amount of BGN 1 282 582.19 – a principal amount of BGN 618 171.16 (the VAT charged in the invoices to the named recipients) and interest of BGN 664 411.03 (calculated from the first day of the month following the issue of the invoices until 31 July 2019) – against its liabilities under public law.
By a set-off and refund notice dated 6 March 2020, the revenue authority at Teritorialna direktsia na Natsionalna agentsia za prihodite, Varna (Territorial Directorate of the National Revenue Agency, Varna) refused to set off the VAT amounts wrongly paid and collected, in the amounts specified. The notice stated that the application for set off was made after the expiry of the limitation period pursuant to Article 129(1) of the DOPK. According to that provision, an application for set-off or refund is to be examined if it is made within a period of five years from 1 January of the year following the year in which the ground for refund arose, unless otherwise provided by law. Furthermore, the notice stated that CRG had neither proved that amounts totalling BGN 1 282 582.19 had been wrongly paid or collected, nor that it had definite (both in terms of the merits and the amount) and due claims against the fiscal authorities in the total amount mentioned.
CRG appealed to the administrative authorities against the set-off and refund notice. In support of its claims, it submitted court decisions regarding the commencement of insolvency proceedings against the companies that had received the invoices. Three of the companies had been declared insolvent and the start of the liquidation of their assets had been ordered. In addition, it submitted evidence that the claims in question had been asserted in the insolvency proceedings under the Targovski zakon (Law on Commerce), that they had been accepted by the insolvency administrators of the debtor companies and were listed in the schedules of claims accepted in the insolvency proceedings. The set-off and refund notice was upheld in full by decision of the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ [Varna] pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Directorate ‘Appeals and Tax and Social Security Practice’ [Varna] at the Central Administration of the National Revenue Agency) (‘the Director’) of 22 May 2020.
After CRG was unsuccessful in its action against the set-off and refund notice before the Administrative Sad Varna (Administrative Court, Varna), it lodged an appeal in cassation with the referring court against the first-instance judgment of 16 February 2020. In the course of the examination of the merits of the appeal in cassation, the Supreme Administrative Court came to the conclusion that the resolution of the dispute required an interpretation of EU law.

Questions

In the event of a derogation in accordance with Article 90(2) of the VAT Directive, do the principle of neutrality and Article 90 of that directive allow a provision of national law such as the second sentence of Article 129(1) of the Danachno-osiguritelen protsesualen kodeks (Tax and Social Security Procedure Code), which provides for a limitation period for the submission of an application for a set-off or refund of the tax charged by the taxable entity in respect of the supply of goods or services in the event of total or partial non-payment by the recipient of the supply?
Irrespective of the answer to the first question, in the circumstances of the main proceedings, is it a necessary condition for the recognition of the right to a
reduction in the taxable amount under Article 90(1) of the VAT Directive that the taxable entity corrects the invoice which it has issued, as regards the VAT charged, on account of total or partial non-payment by the recipient of the price of the supply under the invoice, before submitting the application for a refund?
Depending on the answers to the first two questions: How must Article 90(1) of the VAT Directive be interpreted when determining the time at which the ground for a reduction of the taxable amount arises in the event of total or partial non-payment of the price where there is no national provision in place on account of a derogation from Article 90(1)?
How must the reasoning in the judgments of 27 November 2017, Enzo Di Maura (C-246/16, EU:C:2017:887, paragraphs 21 to 27), and of 3 July 2019, UniCredit Leasing (C-242/18, EU:C:2019:558, paragraphs 62 and 65) be applied if Bulgarian law does not contain any specific conditions for the application of the derogation under Article 90(2) of the VAT Directive?
Are the principle of neutrality and Article 90 of the VAT Directive consistent with a tax and insurance practice under which, in the event of nonpayment, no correction of the tax charged is permitted until the recipient of the supplies or services – provided that the recipient is a taxable entity – has been notified of the cancellation of the tax, so that the deduction initially made by the recipient is corrected?
Does the interpretation of Article 90(1) of the directive permit the assumption that a possible right to a reduction of the taxable amount in the event of total or partial non-payment gives rise to a right to a refund of the VAT paid by the supplier, plus interest for late payment, and from what point in time?

AG Opinion

1. Article 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax does not preclude an appropriate limitation period where this does not begin to run until the date on or after which the taxable person was able to reduce the taxable amount in the event of total or partial non-payment of the price. A limitation period which starts to run from when the supply is made or the invoice issued, however, is not compatible with Article 90 of that directive. If that date is not specified by law, a limitation period cannot begin to run until the date on which a likelihood bordering on certainty exists that the debt has become irrecoverable.
2. An obligation to correct a correct invoice as a condition for reducing the taxable amount in the event of non-payment of the price infringes Directive 2006/112.
3. The point from which a taxable person may reduce the taxable amount for the first time in the event of total or partial non-payment as provided for in Article 90(1) of Directive 2006/112 depends on the situation obtaining in the Member State concerned and the circumstances of the particular case, which it is for the referring court to ascertain. That said, the principle of neutrality prohibits a disproportionately long pre-financing of the tax, provided that the taxable person (the supplier) has taken reasonable steps to discharge its function as tax collector for the State. The latter always presupposes the issue of an unsuccessful request for payment (reminder) to the recipient of the supply. It does not, however, require unsuccessful court proceedings or the opening or conclusion of insolvency proceedings in respect of the assets of the recipient of the supply.
4. Article 90(1) of Directive 2006/112 is directly applicable where the Member State erroneously applies the option to derogate provided for in Article 90(2) of that directive, in that it fails to take into account the uncertainty of definite non-payment and instead excludes the right to reduce the taxable amount altogether.
5. A statutory obligation whereby the supplier must inform the recipient of the supply, in the event of its (total or partial) non-payment of the price, about the change of the taxable amount in order to remind the latter of any change yet to be made to the input tax deduction is disproportionate because unsuitable for securing the attainment of the objectives pursued. Consequently, Member States may not lay down such an obligation in the context of Article 90 of the VAT Directive.
6. Interest on a claim to a refund on account of a reduction of the taxable amount may be made to become payable at the earliest as from the point at which the supplier is able to assume that payment will no longer be made and has declared this in the course of the tax assessment.

Decision

1) Article 90 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, considered in relation to the principles of fiscal neutrality, proportionality and efficiency, must be interpreted in the sense that it allows legal legislation of a member state which provides for a preclusion period for the submission of a request for a refund of the value added tax (VAT) as a result of a reduction of the VAT tax base in case of full or partial non-payment, the expiration of which leads to the sanctioning of the taxable person who is not exercised due diligence to a sufficient extent, provided that this period begins to run only from the moment when this taxable person was able — without failing to exercise due diligence — to assert his right to abatement. In the absence of national legislation regarding the conditions and procedure for exercising this right, the taxable person must be able to determine with a reasonable degree of probability the moment from which this preclusion period begins to run.

2) Article 90, paragraph 1 and Article 273 of Directive 2006/112, considered in relation to the principles of fiscal neutrality and proportionality, must be interpreted in the sense that, in the absence of special national legislation, these provisions do not permit a requirement of the tax administration, whereby the reduction of the tax base of the value added tax (VAT) in case of full or partial non-payment of an invoice issued by a taxable person is made subject to the condition that this person corrects the original invoice in advance and notifies the debtor in advance of his intention to cancel the VAT, after that taxable person is unable to make such correction in a timely manner, without himself being responsible for this inability.

3) Article 90(1) of Directive 2006/112, considered in relation to the principle of fiscal neutrality, must be interpreted as meaning that a possible right to reduce the taxable amount of value added tax (VAT) in the event of total or partial non-payment of an invoice issued by a taxable person gives the right to a refund of the VAT paid by him, together with interest for late payment, and that when the legal framework of a member state does not provide for the terms and conditions for applying any interest that may be due, the moment from which the taxable person asserts his right to the specified reduction within the declaration for the current tax period at that time, is the starting point for the calculation of these interests.

Summary

Article 90 of Council Directive 2006/112/EC allows member states to legislate a preclusion period for VAT refund requests due to non-payment, starting from the moment the taxable person could assert their right to a refund. The preclusion period must be determinable by the taxable person. Additionally, the directive does not permit tax administration to require correction of invoices as a condition for VAT base reduction. Lastly, in the absence of national legislation, the taxable person can claim interest for late payment from the moment they assert their right to VAT reduction.

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