Retroactive VAT deduction allowed after the rectification of invoices. Judgment of the European Court of Justice of September 15th, 2016. Senatex GmbH
A new judgment of the Court of Justice of the European Union (ECJ) in relation to the right to deduct in the VAT and formal requirements to comply with by the taxpayer, unless in this occasion the Court is questioned about the temporality of the deduction, i.e., if a retroactive deduction in the period corresponding to original invoice is possible or it must exercise the right in the period in which the invoice is rectified.
The case corresponds to an entity that was subject to tax inspection by the tax authorities in Germany, for the years 2008 to 2011, which was denied the right to deduction of VAT quotas borne, corresponding to commissions of their sales agents and services of advertising, due to the absence of the tax identification number of the issuer in the supporting document evidencing such services (the Judgment does not speak of invoices but some documents of settlement). Later in 2013, during the inspection and before the end of this process, the taxable person provided corrected invoices for the period 2009 to 2011 with the data that was absent, demanding the deduction of VAT quotas in the periods subject to inspection.
However, the German tax administration denied the deduction of the VAT quotas VAT in the period 2009-2011 under the argument that rectification of the invoices for the inclusion of missing compulsory data does not have retroactive effect, thus can only deduct in the year in which the rectification was made. Against this criterion the taxpayer submitted an appeal, raising the national court the preliminary rulings in the sense of whether the VAT Directive opposes the national rules denying the retroactivity of the deduction.
The ECJ is based primarily in its own jurisprudence related to the limitation to the deduction by the breach of formal requirements. In this sense, reminds the Court that the breach of some formal requirement (as can be the absence of the tax id. number of the issuer) cannot limit the right to the deduction when the material requirements are meet for such purposes, that is, to have a VAT taxpayer status and that goods or services acquired are intended to the performance of taxable activities.
The right to the deduction is a fundamental principle which ensures the neutrality of VAT, which is born at the moment in which the tax is payable. Thus, as mentioned the Court, the right to the deduction of the VAT must be exercised, in principle, in the period in which, firstly, is was originated the right to deduct, and secondly, the taxpayer is in possession of the invoice. Moreover, the EU Directive contemplates the possibility of rectifying the invoices due to formal mistakes.
In addition, establishes the Court that to request delay interests (as established by the German Regulation) over the VAT due, until the invoice is rectified, represents an additional financial burden for the taxpayer, which goes against the neutrality of the tax. To this respect, mentions the Court that there are not inconvenient in establishing proportional penalties due to failure to comply with formal requirements, but this penalty cannot means a limitation to the right to the deduction.
In conclusion, the Court judges that the EU Directive is opposed to a national provision that rejects the deduction of the VAT retroactively in the period in that VAT is due and taking it to the period in that the invoices are rectified, in so far as it only exists a breach of some formal requirements rather than material ones for the deduction.
Attached is a copy of the judgment with case number C-518/14.