Briefing Document: VAT Invoicing Liability and Revenue Risk (ECJ Judgment C-794/23)
Executive Summary
This briefing analyses the core themes and key rulings from the European Court of Justice (ECJ) judgment in Case C-794/23, Finanzamt Österreich v P GmbH, concerning the interpretation of Articles 203 and 238 of the VAT Directive (2006/112/EC). The judgment clarifies the conditions under which a taxable person is liable for incorrectly invoiced VAT, particularly when dealing with simplified invoices and a mix of customer types. The central principle governing liability is the “risk of loss of tax revenue” for the Member State. The Court provides strict definitions for “final consumers” and outlines how national authorities can use estimates in mass-market scenarios while upholding key EU law principles.
Main Themes and Key Ideas/Facts
1. Purpose and Application of Article 203 VAT Directive: Preventing Loss of Tax Revenue
- Core Principle: Article 203 of the VAT Directive primarily aims to “eliminate the risk of loss of tax revenue which the right of deduction provided for in that directive might entail.”
- General Rule: “VAT shall be payable by any person who enters the VAT on an invoice.” This applies even if the amount is incorrect or no actual taxable transaction occurred, specifically when there is a risk that the recipient might attempt to deduct the incorrectly invoiced amount as input VAT.
- Specific Condition for Non-Liability: A taxable person is not liable for the part of VAT incorrectly invoiced if the service was supplied to a non-taxable person. This holds true “even if that taxable person has also supplied similar services to other taxable persons.” The crucial factor is the absence of a risk of loss of tax revenue, which is assessed “on the basis of a specific invoice.”
2. Strict Interpretation of “Final Consumers Who Do Not Have a Right to Deduct Input VAT”
- Definition: The Court adopts a strict interpretation of this concept, stating it refers only to non-taxable persons (e.g., individuals purchasing for private use).
- Exclusion of Taxable Persons: Crucially, it “explicitly excludes taxable persons,” even if they use the service for private purposes or other activities that would not normally confer a right to deduct input VAT.
- Rationale: This strict interpretation is maintained because “a risk exists where the recipient of an incorrect invoice is a taxable person, including in the event that that person could have used the supply concerned for private purposes or for other purposes in respect of which VAT is not deductible.” The potential for even an incorrect claim for deduction by a taxable person creates a risk for tax authorities.
3. Challenges in Simplified Invoicing (Article 238) and the Permissibility of Estimates
- The Problem: In mass-market commerce, especially with simplified invoicing (for low-value transactions, e.g., under EUR 400 as per Austrian law), the identity of recipients may not be known, making it difficult to determine VAT liability when an incorrect rate has been applied to a large volume of invoices.
- Solution: Estimation Permitted: The VAT Directive “does not preclude… a tax authority or a national court from using an estimate in order to determine the proportion of the invoices in respect of which a taxable person who has incorrectly invoiced VAT is liable for that tax.”
- Criteria for Estimation: For such an estimate, “all the relevant circumstances are to be taken into account,” including:
- The nature of the service provided.
- The manner in which that service is supplied and invoiced.
- Any statistical information concerning the recipients available to the supplier.
- The fact that, as in the P GmbH case, “the customers of the taxable person concerned are not often other taxable persons is of particular importance.”
4. Guiding Principles for Estimation: Fiscal Neutrality, Proportionality, and Rights of Defence
- Procedural Autonomy & Limits: While Member States have “procedural autonomy” to lay down criteria for determining liability, this is “circumscribed by the principles of equivalence and effectiveness.”
- Fiscal Neutrality: This principle ensures that businesses are “relieved entirely of the burden of the VAT due or paid in the course of all his or her economic activities.” It is complied with by providing an “opportunity… of correcting any tax incorrectly invoiced, where the issuer of the invoice has, in sufficient time, wholly eliminated the risk of any loss of tax revenue.”
- Proportionality: This requires that:
- Data used for the estimate must be “correct, reliable and up to date.”
- The estimate “can… give rise only to a rebuttable presumption,” allowing the taxable person to challenge it with “evidence to the contrary.”
- The “necessary standard of proof is not excessively high.”
- Rights of Defence: Before an adverse decision, the taxable person “must be placed in a position in which he or she can effectively make known his or her views as regards the information on which the authorities intend to base their decision, in particular to challenge the accuracy of the estimate.”
5. Case Specifics (P GmbH and Finanzamt Österreich)
- Dispute: P GmbH, an indoor playground operator, applied a 20% VAT rate instead of the correct 13% rate on admission fees. It sought to correct its VAT return, arguing that its customers were “almost exclusively” non-taxable final consumers.
- Previous Ruling (C-378/21): An earlier ECJ judgment for P GmbH’s case stated that a taxable person is not liable for incorrectly invoiced VAT if there is “no risk of loss of tax revenue on the ground that the recipients… are exclusively final consumers who do not have a right to deduct input VAT.”
- Austrian Court’s Interpretation: The Bundesfinanzgericht (Federal Finance Court, Austria) applied this by estimating a small proportion (0.5%) of P GmbH’s turnover as potentially subject to VAT debt, implying a split between final consumers and taxable persons.
- Tax Authority’s Appeal: Finanzamt Österreich appealed, arguing that the previous ECJ judgment (C-378/21) did not permit such an estimated split for determining liability, as it had been based on the premise of exclusively final consumers.
- ECJ’s Current Stance (C-794/23): The current judgment supports the possibility of using an estimate, provided the aforementioned principles are observed, and clarifies the strict definition of “final consumers.” It implies that while a precise identification of each invoice’s recipient might be impossible in mass-market contexts, an evidence-based estimate that respects fundamental principles is permissible.
Conclusion
The ECJ’s judgment in Finanzamt Österreich v P GmbH (C-794/23) provides crucial clarity on VAT liability for incorrectly invoiced amounts under the VAT Directive. It reinforces that the “risk of loss of tax revenue” is the overriding factor for applying Article 203. The Court strictly defines “final consumers” as only non-taxable persons, emphasizing that any taxable person, regardless of their intended use of the service, carries a inherent risk of deduction. Crucially, in situations involving high volumes of simplified invoices where individual recipient identification is impractical, tax authorities and national courts may resort to estimates, provided these estimates are conducted in full compliance with the principles of fiscal neutrality, proportionality, and the taxable person’s rights of defence. This judgment aims to strike a balance between safeguarding national tax revenues and ensuring fairness and practicality for businesses.
See also
- ECJ C-794/23 (Finanzamt Österreich) – Judgment – Taxpayer not liable for incorrectly charged VAT to non-taxables – VATupdate
- Roadtrip through ECJ Cases – Liability to pay VAT – VAT shall be payable by any person who enters the VAT on an invoice (Art. 203)
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
