European Court of Justice of March 13, 2014 (Case C-107/13). On the inadmissibility of VAT deduction practiced by the recipient of an invoice issued in respect of an advance payment on account of supply of goods where such delivery is not finally made.


The company OOD FIRIN (herein after FIRIN) agreed with thee entity AGRA PLANI EOOD (hereinafter AGRA PLANI) the supply of wheat, operation to be paid in advance. AGRA PLANI issued the corresponding invoice including the VAT quota and FIRIN proceeded to pay the prepayment and to deduct such VAT quota.

However, the Bulgarian tax authorities rejected this deduction arguing that the transaction in question was not performed as well as the existence of fraud.

At this point it should be recalled that Article 167 of Directive 2006/112 which provides that the right to deduct shall arise at the time when the deductible tax is accrued. Article 65 of the same Directive mentions that in the case of supply of goods or services that cause payments in advance, before the delivery of goods or the provision of services, the VAT shall accrues upon receipt of the payment and in the amount received.

However, treatment in the above mentioned Directive of improperly invoiced VAT in the absence of a transaction subject to VAT, is different from the sender and recipient of said invoice. The sender would owe the ​​VAT quota included in the invoice even if no operation. However, the invoice recipient would not be entitled to deduct said VAT quota in the absence of a transaction subject to VAT.

In this regard, the Court decided that the deduction of the VAT quota practiced by FIRIN as recipient of an invoice issued in respect of an advance payment on account of supply of goods, must be adjusted when the delivery finally is not performed, even though the supplier still owe the VAT quota and has not refunded the payment in advance. Notwithstanding the right of FIRIN get from your provider, by the means provided for that purpose by national law, the refund of advance payment on account for the delivery of goods which ultimately was not carried out .

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