Key takeaways
On 7 September 2023, the European Court of Justice (“ECJ”) issued its ruling in case C-453/22 where a VAT taxable person has been considered entitled to recover overpaid VAT from VAT authorities directly when the latter is not in a position to recover such overpaid VAT from its suppliers due to civil law limitation periods.
Facts of the case
The plaintiff is a Germany-based farmer and forester and operates a commercial trade in firewood. In the years 2011 to 2013, the plaintiff purchased timber from his suppliers and settled the respective invoices which applied the 19% standard VAT rate. The plaintiff subsequently sold and delivered the wood to his customers as firewood applying the reduced rate of 7%. The upstream suppliers each declared the turnover and paid the 19% input VAT to the tax authorities. The plaintiff declared output sales at 7% and for his part deducted the input tax in respect of its purchases in the amount of 19%.
A subsequent tax audit revealed that the reduced VAT rate of 7% should also have been applied on the acquisitions of timber, rather than the standard 19% VAT. The plaintiff asked his suppliers for corrected invoices and a refund of the excess VAT paid. However, the latter raised the objection of the civil law statute of limitation and refused to correct the invoices and refund the excess VAT.
The plaintiff then turned to the tax office to assert a direct claim for reimbursement of the overpaid input VAT. He also claimed interest on the VAT amount. He brought an action against the tax office’s refusal before the Finance Court of Münster (Finanzgericht Münster). In those circumstances, the Finance Court of Münster decided to stay the proceedings and to refer the following question to the ECJ for a preliminary ruling:
In the circumstances of the main proceedings, do the provisions of the VAT Directive – in particular the principle of fiscal neutrality and the principle of effectiveness – require that the applicant has a right to claim reimbursement of the VAT overpaid by the latter to his or her upstream suppliers, including interest, directly from the VAT authorities?
Outcome
According to the ECJ’s decision, 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 VAT authorities the reimbursement of improperly invoiced VAT paid to his or her suppliers and paid by those suppliers to the public purse, together with related interest, in circumstances where :
- first, that receiver cannot be criticized for fraud, abuse or negligence but cannot claim that reimbursement from those upstream suppliers due to the limitation period provided for by national law and,
- second, there is a procedural possibility of those suppliers subsequently claiming reimbursement of the overpaid VAT from the VAT authorities after having adjusted the invoices that were issued initially to the receiver of those supplies. Failing reimbursement of the VAT improperly charged by the VAT authorities within a reasonable time, the damage suffered on account of the unavailability of the amount equivalent to that improperly charged VAT must be compensated by the payment of default interest.
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