In the judgment, dated September 9, 2021 (Case-Law C-294/20), the ECJ intends to clarify the preliminary questions raised by the National Court in connection with the VAT refund procedure for non-established taxpayers borne by the company AUTO SERVICE, established in Germany, to whom said refund is denied for not duly justifying such right within the stipulated deadlines.

The matter refers to a German entity, AUTO SERVICE, which provides vehicle leasing – financial leasing – services to Spanish companies, in addition to, occasionally, engaging in the sale of second-hand vehicles in Spanish VAT territory. This entity claimed to the Spanish Tax Authorities for the VAT refund, corresponding to the years 2005 and 2006.

Within the framework of said refund procedure, the Spanish tax administration issued two requests in order for this company to provide them with the originals of the invoices supporting the VAT refund, as well as a detailed clarification of the operations carried out in Spain. The entity met these requirements, but manifesting serious difficulties in locating and filing the documents required by the Spanish tax administration.

After the rejections, the company filed an appeal for reconsideration recognizing the late reply to the requirements, but specifying that such response had taken place before the notification of the refusal resolutions. Given the situation, before resolving the appeal for reconsideration, the Spanish tax administration sent the company a new request asking for clarifications. In particular, Auto Service was urged to detail the destination of the goods acquired whose VAT refund was requested, and to prove that they were involved in operations that give right to refund of VAT.

However, once again, AUTO SERVICE did not comply with the corresponding request, so that finally the Spanish Tax Administration rejected the appeal and denied the refund of the VAT quotas. Against such resolution, AUTO SERVICE filed an economic-administrative claim before the Central Economic-Administrative Court, providing the previously required documentation. However, their claims were rejected, as the Central Economic-Administrative Court argued that the evidence should be provided before the competent body and not during the economic-administrative claim procedure phase.

Appealing again to the National High Court, the Court proceeds to assess whether the delay in the presentation of said documentation is unjustified, and may turn into an abusive practice contrary to the principle of legal certainty by leaving open the option to exercise the right to deduct the VAT without limitation in time, for which it decides to suspend the procedure and submit the following preliminary questions to the ECJ:

  1. Should it be accepted as valid that a taxpayer, after having been repeatedly requested by the Tax Administration to prove the assumptions of the right to refund, does not comply with what is requested without any reasonable justification and, after being denied the refund, postpones the documentary evidence provision to a subsequent judicial phase?
  2. Can it be considered as an abuse of right that the taxpayer does not provide the necessary information, in which he supports his right to the Tax Administration, when he was allowed and required to do so, but does not do so without justified reason, and on the contrary that information is voluntarily provided later to the Tax Authorities or court?
  3. Does the non-established taxpayer, either by not having provided in time and without reasonable justification the relevant information to prove his right to a refund, or by his abusive behaviour, lose his right to refund once the term foreseen or granted for this purpose is finished and the Administration has issued a resolution denying the refund?

Regarding the first and third questions, the case law has reiterated on several occasions that the right to refund constitutes a fundamental principle of the common VAT system, which, in principle, cannot be limited. However, carrying out a reading on what is stated in articles 3 and 4 of the Eighth VAT Directive, it can be observed that a taxable person will only be able to benefit from the VAT refund if he complies with all the obligations established in the aforementioned articles, which include, for example, the submission of the originals of the invoices of the operations subject to VAT in the Member State of refund. In this sense, it can be seen that the litigation in question does not revolve around the fulfillment or not of the formal obligations that give rise to the right to refund, but rather revolves around the time limits set in which said proof can be provided.

In this sense, the jurisprudence of the ECJ, as regard to the moment of provision of evidence and its close relationship with the principle of effectiveness, has stated that the possibility of being able to present a request for VAT refund without any time limitation would be contrary to the principle of legal certainty that requires that the tax situation of the taxpayer, with regard to their rights and obligations vis-à-vis the Tax Administration, cannot be questioned indefinitely – judgment of February 14, 2019, Nestrade, C562 / 17, EU : C: 2019: 115, paragraph 41 and case law cited-.

In addition, in this case, the diligent action by the Tax Administration stands out, requesting AUTO SERVICE on two occasions to submit the necessary information, without the entity having stated that the deadline to respond to these requirements was insufficient or maintained any complexity, thus being able to affirm that at no time was it impossible or excessively complicated for AUTO SERVICE to exercise its right to a VAT refund.

Therefore, it concludes that both, the provisions of the Eighth VAT Directive and the principle of tax neutrality, do not preclude the denial of a request for a VAT refund when the taxpayer has not submitted to the competent tax administration, within the deadlines fixed, or at the request of this, all the documents and information required to prove his right to refund, regardless of whether he subsequently provide said documents in other processes.

Regarding the second question, European Union Law considers that it does not constitute an abusive practice for a taxable person claiming a VAT refund and not to provide the documents required by the tax administration during the administrative procedure and to provide them voluntarily in subsequent procedural proceedings, by not meeting the two conditions repeatedly established by jurisprudence to be considered an abusive practice: on the one hand, that the operations carried out have the objective of obtaining a tax advantage whose concession would be contrary to the objective of such provisions, and, on the other hand, that of a set of objective elements the main purpose of said operations is limited to the obtaining said tax advantage – judgment of July 10, 2019, Kuršu zeme, C273 / 18, EU: C: 2019: 588, paragraph 35 and case law cited-.

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