Briefing Document & Podcast ECJ C-516/14 (Barlis) – No refusal to deduct VAT solely based on formal invoice defects

Briefing: The Barlis Judgment on VAT Deduction and Invoice Formalities

I. Executive Summary

The Barlis judgment (Case C-516/14) by the Court of Justice of the European Union (CJEU) is a landmark ruling concerning the right to deduct Value Added Tax (VAT) in the face of formally deficient invoices. The core dispute involved the Portuguese Tax and Customs Authority denying Barlis 06 – Investimentos Imobiliários e Turísticos SA the right to deduct input VAT for legal services, due to “generic descriptions and missing dates on invoices.”

The CJEU clarified the distinction between substantive and formal conditions for VAT deduction and, crucially, affirmed the supremacy of the principle of fiscal neutrality. The judgment dictates that national tax authorities cannot refuse the right to deduct VAT solely based on formal invoice defects if they possess all necessary information to confirm that the underlying substantive conditions for deduction are met. This includes considering additional information and annexes provided by the taxable person. While Member States can impose penalties for formal non-compliance, these must be proportionate and must not undermine the fundamental right to deduction or VAT neutrality.

II. Background of the Barlis Case

Barlis 06 – Investimentos Imobiliários e Turísticos SA, a Portuguese company operating hotels, sought to deduct VAT for legal services received between 2008 and 2010. The invoices for these services contained descriptions such as “Legal services rendered from [a date] until the present date” or “Legal services rendered until the present date.”

The Portuguese Tax and Customs Authority refused the VAT deduction, arguing that these descriptions were insufficient under national legislation (Article 36(5)(b) of the Código do IVA) and, implicitly, under Article 226(6) and (7) of the VAT Directive, which require specific details regarding the “extent and nature of the services rendered” and the “date on which the supply of goods or services was made or completed.” Barlis provided additional annexes with more detailed information, but the authorities initially deemed these insufficient to remedy the formal defects of the original invoices.

The case was referred to the CJEU for a preliminary ruling to interpret the relevant provisions of Council Directive 2006/112/EC (the VAT Directive).

III. Key Concepts and Legal Provisions

The Barlis judgment hinges on several fundamental principles and articles of the VAT Directive:

Common System of VAT: A consumption tax designed to be neutral for businesses, ensuring they are not burdened by VAT on their inputs.
Principle of Fiscal Neutrality: This “cornerstone of the VAT system” (Barlis Judgment: VAT Deduction and Invoice Formalities, Point 4) aims to “relieve the operator entirely of the burden of the VAT due or paid in the course of all his economic activities.” (CURIA – Documents, Point 39) It ensures that economic activities are taxed neutrally, provided they are subject to VAT.
Right of Deduction (Input VAT) – Article 168(a): This is a “fundamental principle of the common system of VAT” (CURIA – Documents, Point 37), allowing a taxable person to deduct VAT paid on goods or services used for their own taxed transactions. This right is generally “exercisable immediately” (CURIA – Documents, Point 38).
Conditions for Exercise (Article 178(a)): To exercise the right of deduction, a taxable person “must hold an invoice drawn up in accordance with Articles 220 to 236” (CURIA – Documents, Point 5).
Invoice Requirements (Article 226): This article provides an “exhaustive list” of details required on invoices for VAT purposes. “Member States cannot impose additional invoicing obligations beyond those specified here.” (Barlis VAT Case: Invoice Formalities and Deduction Rights, Section II.C.)
Article 226(6): Requires “the quantity and nature of the goods supplied or the extent and nature of the services rendered.”
Article 226(7): Requires “the date on which the supply of goods or services was made or completed… in so far as that date can be determined and differs from the date of issue of the invoice.”
Ongoing Services (Article 64(1)): For services “giving rise to successive statements of account or successive payments,” the supply is considered “completed on expiry of the periods to which such statements of account or payments relate.” (CURIA – Documents, Point 3) This means these periods must be mentioned for the invoice to satisfy Article 226(7).
Amending Invoices (Article 219): Crucially, “any document or message that amends and refers specifically and unambiguously to the initial invoice shall be treated as an invoice.” (CURIA – Documents, Point 6)
Member State Limitations (Article 273): While Member States can impose obligations for correct VAT collection and evasion prevention, these “cannot be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3 [including Article 226].” (CURIA – Documents, Point 9) Any penalties must be proportionate and must not undermine VAT neutrality.

IV. Court’s Reasoning and Judgment

The CJEU’s reasoning addressed two main aspects of the preliminary question:

A. Compliance of Invoices with Article 226(6) and (7)

Exhaustive Nature of Article 226: The Court reaffirmed that Article 226 “lists exhaustively the details which must appear in invoices issued for VAT purposes.” (CURIA – Documents, Point 21) Member States cannot “make the exercise of the right to deduct VAT dependent on compliance with conditions relating to the content of invoices which are not expressly laid down by the provisions of Directive 2006/112.” (CURIA – Documents, Point 25)
Sufficiency of Description (Article 226(6)): The objective of invoice details is to allow tax authorities to “monitor payment of the tax due and, if appropriate, the existence of the right to deduct VAT.” (CURIA – Documents, Point 27)

The generic description “legal services” was deemed a priori insufficient because “that expression covers a wide range of services, including services not necessarily connected with economic activity” and “does not appear to indicate in sufficient detail the nature of the services concerned.” (CURIA – Documents, Point 28) It also failed to disclose the “extent” of the services.
Sufficiency of Date (Article 226(7)):For ongoing services, “it is essential that those periods [to which statements/payments relate] are mentioned in the invoices.” (CURIA – Documents, Point 31)
Invoices stating “legal services rendered from [a date] until the present date” appear to specify the period.
However, an invoice stating only “legal services rendered until the present date” is insufficient as it “does not mention the date on which the period in question started, and does not therefore make it possible to determine the period to which the accounts in question relate.” (CURIA – Documents, Point 32-33)

Role of Annexes/Article 219: The Court instructed the referring tribunal to determine “whether the annexes produced by Barlis provide a more detailed description… and may be treated as invoices by virtue of Article 219… as documents that amend the initial invoice and refer specifically and unambiguously to it.” (CURIA – Documents, Point 34)

B. Consequences of Non-Compliance with Formal Conditions for the Right to Deduct VAT

Fiscal Neutrality Over Formalism: This is the most critical aspect of the ruling. The Court explicitly stated that “the fundamental principle of the neutrality of VAT requires deduction of input VAT to be allowed if the substantive requirements are satisfied, even if the taxable persons have failed to comply with some formal conditions.” (CURIA – Documents, Point 42)
Tax Authorities’ Obligation: “Where the tax authorities have the information necessary to establish that the substantive requirements have been satisfied, they cannot, in relation to the right of the taxable person to deduct that tax, impose additional conditions which may have the effect of rendering that right ineffective for practical purposes.” (CURIA – Documents, Point 42)
Consideration of Additional Information: Tax authorities “cannot restrict themselves to examining the invoice itself. They must also take account of the additional information provided by the taxable person.” (CURIA – Documents, Point 44) This includes documents treated as invoices under Article 219.
Burden of Proof: While authorities must consider additional information, it remains “for the taxable person seeking deduction of VAT to establish that he meets the conditions for eligibility.” (CURIA – Documents, Point 46)
Proportionality of Penalties: Member States “have power to lay down penalties for failure to comply with the formal conditions” (CURIA – Documents, Point 47), but these “must not go further than is necessary to attain those objectives and do not undermine the neutrality of VAT.” (CURIA – Documents, Point 47) Penalties “proportionate to the seriousness of the offence” are permissible. (CURIA – Documents, Point 48)

V. Practical Implications

The Barlis judgment has significant practical implications for businesses and national tax authorities:

For Businesses:Don’t panic over minor formal defects: If an invoice has formal defects (e.g., generic descriptions, missing start dates for ongoing services), the right to VAT deduction should not be automatically denied.
Be prepared to provide supplementary information: Businesses must be ready to provide “additional information or annexes that clearly demonstrate that the substantive conditions for VAT deduction have been met.” (Barlis Judgment: VAT Deduction and Invoice Formalities, Point 8) These supplementary documents, provided they refer specifically and unambiguously to the original invoice, should be considered by tax authorities.
Focus on substantive compliance: The judgment shifts the emphasis from strict formalism to proving the validity of the underlying transaction.
For National Tax Authorities:Cannot deny deduction solely on formal grounds: Tax authorities are precluded from denying VAT deduction solely because of formal defects on an invoice if the substantive conditions are met.
Must consider all available information: Authorities are obligated to “take into account all the information included in the invoices at issue and in the annexes produced by Barlis” (CURIA – Documents, Point 45) or any other information provided by the taxable person.
Limited power to impose additional invoicing requirements: Member States cannot impose invoicing requirements beyond the exhaustive list in Article 226 of the VAT Directive.
Penalties must be proportionate: Any penalties for formal non-compliance must be proportionate and must not undermine the fundamental principle of VAT neutrality or render the right to deduction practically ineffective.

Briefing Document & Podcast ECJ C-516/14 (Barlis) – No refusal to deduct VAT solely based on formal invoice defects

Advertisements:

Contact:

Support & Info

Sign up for our newsletter