In this News Flash, we would like to introduce you an interesting case decided by the European Court of Justice (ECJ) that concerns the right of the Slovak customer to claim the reimbursement of the VAT improperly invoiced by the foreign supplier and subsequently paid by those suppliers to the tax authorities. The case arises, because the customer cannot claim that reimbursement from those suppliers due to the limitation period set by national law.

Could the reimbursement be claimed directly from the tax authorities?

The ECJ in its judgment C‑ 453/22 of September 7, 2023, addressed of  whether the EU VAT Directive, along with  the principle of VAT neutrality and effectiveness, must be interpreted as requiring that a receiver of goods has a direct right to claim from the tax authorities the reimbursement of improperly invoiced VAT paid to those suppliers and paid by those suppliers to the public purse, together with related interest, in circumstances where that receiver cannot be criticised for fraud, abuse or negligence, but is unable to claim that reimbursement from those suppliers due to the limitation period provided for by national law.

The judgment concerns the farmer and forester, Mr. Michael Schutte

The judgment concerns the farmer and forester, Mr. Michael Schutte Who purchased timber from various suppliers and subsequently resold and delivered it to his customers as firewood. Although the VAT stated in the invoices of his suppliers was the standard rate of 19%, the VAT stated on the invoices issued by Mr. Schutte to his customers was the reduced rate of 7%. According to the conclusion of the tax authorities, also the purchases made by Mr. Schutte were also subject to the reduced rate of 7% and therefore the amount of input VAT was reduced accordingly and the tax authority required to pay the difference in originaly deducted VAT.

Mr. Schutte contacted his suppliers to correct the invoices issued to him and pay him the difference. All the suppliers invoked the defence of limitation provided for under German civil law. Accordingly, the invoices in question were not corrected and no payments refunded by his suppliers. Mr. Schutte applied to the tax office for discharge from the additional VAT recovery and the interest, however the application was rejected by the tax authorities.

The principle of neutrality of VAT is a fundamental principle of the common system of VAT

The deduction system is intended to relieve the taxable person entirely of the burden of the VAT payable or paid in the course of all of that person’s economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that those activities are themselves subject in principle to VAT.

In the absence of EU rules on applications for the repayment of taxes, it is for the domestic legal system of each Member State to lay down the conditions under which such applications may be made. Those conditions must observe the principles of equivalence and effectiveness, that is to say, they must not be less favourable than those relating to similar claims founded on provisions of domestic law or framed so as to render virtually impossible the exercise of rights conferred by the EU legal order.

Then, if reimbursement of the VAT becomes impossible or excessively difficult, in particular in the case of the insolvency of the supplier, the principle of effectiveness may require that the purchaser of the property concerned be able to address his application for reimbursement to the tax authorities directly. Thus, the Member States must provide for the instruments and the detailed procedural rules necessary to enable the purchaser to recover the improperly invoiced tax in order to respect the principle of effectiveness.

How did the ECJ decide?

In this specific case, the ECJ decided that EU VAT Directive along with the principle of VAT neutrality and the principle of effectiveness must be interpreted as requiring that a receiver of supplies of goods has a direct right to claim from the tax authorities the reimbursement of improperly invoiced VAT paid to their suppliers and paid by those suppliers to the public purse, together with related interest, in circumstances where that receiver cannot be criticised for fraud, abuse or negligence but cannot claim that reimbursement from those suppliers due to the limitation period provided for by national law.

Tomáš Ptáček

Senior Tax Consultant | Accace Slovakia

Get in touch with us