In the case of Agrobet CZ, s.r.o. (C-446/18), the Advocate-General was asked to opine on whether tax authorities are permitted to defer the repayment of all input tax for a VAT period even though only a small part was subject to an ongoing investigation (concerning potential missing trader fraud) by the tax authority.

The dispute related to cross-border transactions in rapeseed oil and the possibility that the taxpayer made an intra-community supply to a fraudulent party and whether it should have realised that the purchaser was acting fraudulently. The Czech tax authority denied recovery of all of the input tax relating to the relevant VAT periods, not just the input tax relating to the alleged fraud. The taxpayer offered to secure the disputed part of the VAT so that the undisputed part could be paid to it. However, the tax authority declined the taxpayer’s offer on the grounds that the excess VAT was indivisible and related to the tax period as a whole.

The Advocate-General concluded that the taxpayer was entitled to recover the undisputed excess VAT despite the ongoing investigation. The Advocate-General noted that the procedural rule that taxpayers must recover excess input tax on a VAT period by VAT period basis rather than on a transaction-by-transaction basis did not override the substantive rule that the right of deduction arises at the time the deductible tax becomes chargeable. Further, the principle of fiscal neutrality which requires cross-border transactions to be treated no less favourably than domestic transactions and the taxable trader – as a mere tax collector for the state – must be relieved of the final VAT burden, meant that the undisputed input tax must be paid promptly to the taxpayer. Effective fraud prevention did not, in this case, justify delaying the repayment of undisputed VAT for an unlimited period of time. The Advocate-General noted that an appropriate means of preventing potential loss of tax revenue would have been to require security (such as a bank guarantee) to cover the feared risk of loss of tax revenue that is to be investigated (as the taxpayer had in this case offered).

DLA Piper comment: In this particular case, the tax investigation into the disputed elements of the claim had been ongoing for some time. The Advocate-General's view seems sensible since taxpayers could otherwise be placed at serious financial risk if relatively small disputed claims could block recovery of other input tax for long periods of time. The requirement for security protects the Tax Authority.