ECJ case C-491/18 (Mennica Wrocławska) – Judgment (Order) – Incorrect description of the goods on the invoices

On December 13, 2018, the ECJ issued its Order in the case C-491/18 (Mennica Wrocławska).

Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court of Justice – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Articles 168, 178 and 226 – Refusal of the right to deduct – Misdescription of the goods on the invoices

Summary

Context and Legal Framework: The case involves Mennica Wrocławska sp. z o.o. challenging the refusal of the Wrocław Tax Authority to allow VAT deductions due to misdescription of goods on invoices. The court sought clarification on the interpretation of Articles 168, 178, and 226 of the VAT Directive regarding the conditions for VAT deductions.
Key Questions to the Court: The Regional Administrative Court in Wrocław questioned whether national tax authorities could deny VAT deduction rights solely based on incorrect identification of goods on invoices, despite the taxpayer providing sufficient documentation and explanations to verify the transactions.
Court’s Decision: The Court of Justice ruled that national tax authorities cannot refuse the right to deduct VAT solely due to invoicing errors concerning the identification of goods, provided that the taxpayer has submitted the necessary documentation to substantiate the transactions.
Justification for the Decision: The Court emphasized the principles of VAT neutrality and proportionality, stating that penalizing taxpayers for formal errors, when substantive conditions for VAT deduction are met, is contrary to EU law. The Court noted that the existence of transactions was confirmed, and that VAT was correctly collected according to applicable regulations.
Implications of the Ruling: This decision reinforces the importance of ensuring that taxpayers are not unjustly denied their right to deduct VAT due to minor errors in invoice descriptions, as long as the actual transaction can be verified and no fraudulent intent is present.

Articles in the EU VAT Directive

Articles 168(a), 178(a) and 226 of the EU VAT Directive

Facts (simplified)

Mennica Wrocławska was denied a deduction of VAT that it had paid on certain transactions concluded with the company Mennica Wrocławska – Dystrybucja sp. z oo on the grounds that the goods covered by these transactions were not correctly identified on the invoices relating to said transactions.

In a first group of invoices, the goods concerned were incorrectly designated under the designation ‘gold scrap’ when they should have been classified as ‘gold granules’, the ‘gold scrap’ being subject to the reverse charge system while “gold granules” come under the normal VAT liability regime. On a second group of invoices, the goods in issue were also identified as “gold scrap” when they consisted in part of “gold granules” and in part in “gold scrap”.

The Wojewódzki Sąd Administracyjny we Wrocławiu (Wrocław Voivodeship Administrative Court, Poland) decided to refer the following question for a preliminary ruling to the Court:

‘The provisions of the [VAT] directive, in particular Article 168, Article 178 (a), Article 226, point 6, as well as the principles of the VAT system, in particular the principles of fiscal neutrality and proportionality, do they not oppose a national practice which denies the right to deduct VAT from invoices on which the wrong type of goods is indicated even if, during the tax procedure (before the adoption of the decision ), the taxable person had presented all the necessary explanations and the reference documents confirming the existence and the specific characteristics of the goods subject to the transaction, which were then accepted by the tax authorities during the tax procedure , and even if the existence of tax fraud has not been established? ”

Questions

Do the provisions of [the VAT Directive], in particular Article 168, Article 178(a) and Article 226(6), and the principles of the VAT system, in particular the principles of fiscal neutrality and proportionality, not preclude a national practice which denies the right to deduct VAT from invoices on which the incorrect type of goods is indicated even if, During the tax procedure (before the adoption of the decision), the taxable person had submitted all the necessary explanations and reference documents confirming the existence and specific characteristics of the goods which were the subject of the transaction, which were subsequently accepted by the tax authorities during the tax procedure, even if the existence of tax evasion was not established?

AG Opinion

None

Order

Article 168(a), Article 178(a) and Article 226 of 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, must be interpreted as precluding the national tax authorities from refusing the taxable person the right to deduct the value added tax due or paid as input on the sole ground that the invoices issued contain an error relating to the identification of the goods which are the subject of the transactions concerned, even though the taxable person has, before the tax authorities take a decision in respect of him, provided them with the documents and explanations necessary to determine the real subject matter of those transactions and attesting to the reality of those transactions.

Source

Curia

Reference to other ECJ Cases in the Order

Case C-516/14, Barlis 06 – Investimentos Imobiliários e Turísticos: This case discusses the fundamental principle of the right to deduct VAT and emphasizes that this right should not be limited as long as the substantive conditions are met.
Case C-518/14, Senatex: Similar to the Barlis case, Senatex reinforces the importance of the right to deduct VAT and clarifies that formal errors should not automatically negate this right if the substantive conditions are satisfied.
Case C-101/16, Paper Consult: This case reiterates that the VAT deduction system is intended to relieve the trader of the VAT burden and that the right to deduction should be preserved even if certain formal conditions are not met, provided that the underlying economic reality is clear.
Case C-159/17, Dobre: This case points out that penalties for failing to comply with formal conditions can be appropriate, but the refusal of the right to deduct cannot be the sole consequence of minor formal errors.
Case C-69/17, Siemens Gamesa Renewable Energy România: This case discusses the criteria under which the right to deduct may be refused, especially regarding fraudulent or abusive purposes.

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