CJEU: Volkswagen AG v Finančné riaditeľstvo Slovenskej republiky (C-533/16)
On 21 March 2018, the CJEU ruled in the case Volkswagen AG (C-533/16), holding that the right to deduct VAT arises at the moment a taxable person receives an invoice, even where the transactions took place years before and the invoices with VAT are issued after the expiry of the statute of limitations period, provided that the taxable person did not demonstrate a lack of diligence and there is no situation of abuse or fraud.
Between 2004 and 2010, Hella companies established in Germany and Slovakia supplied molds for the manufacture of lights for motor vehicles to Volkswagen, established in Germany. As Hella considered the transactions not as supplies of goods but as "financial compensation", exempt from VAT, Hella did not include VAT on its invoices issued to Volkswagen.
In 2010, Hella realized that the transactions should have been subject to VAT according to the Slovakian VAT legislation and therefore issued new invoices charged with VAT. Volkswagen paid the VAT charged by Hella, which then filed supplementary VAT returns and paid the VAT that was due to the Treasury. In 2011, Volkswagen requested the Slovakian tax authorities for a refund of that input VAT.
According to the Slovakian tax authority, the national limitation period of five years had expired for exercising the right to deduct input VAT on the supply of goods between 2004 and 2006 as the entitlement to a refund of VAT arose from the date of the supplies of the goods. Therefore Volkswagen was, in the view of the Slovakian tax authority, only entitled to a VAT refund for the period from 2007 and 2010.
The Slovakian court referred the case to the CJEU, raising the question as to whether it is possible for a taxable person to claim a tax refund if he has not been charged VAT on an invoice. If that is not the case, then the relevant period of five-years can only start once the invoice with is received, regardless of the date of the VAT taxable supply.
In its judgment, the CJEU notes that although the right to deduct VAT arises at the same time it becomes chargeable, it can be exercised only once the taxable person holds an invoice. Nevertheless, a taxable person might be allowed to deduct the VAT if the right during the period in which the right to deduct VAT has arisen, was not exercised (subject to certain conditions and temporal limits).
In the case at hand, Volkswagen only met the substantive and formal conditions that gave rise to the right to deduct input VAT once Hella issued the new invoices in 2010 charging VAT to Volkswagen. In the period 2004-2006 it did not have these invoices, and it therefore did not meet the formal requirements to exercise its right to deduct input VAT. The CJEU confirmed that under these circumstances, it was objectively impossible for Volkswagen to exercise its right to a refund. Therefore, the term to obtain the refund only started after the corrected invoices were received by Volkswagen. The CJEU noted that the risk of tax evasion or non-payment of VAT was excluded in the case at hand as VAT had already been accounted for by Hella.
By its decision in Volkswagen (C-533/16), the CJEU confirms that exercising the right to recover VAT requires:
- That a taxable supply must have been performed.
- That a correct VAT invoice has been issued by the supplier.
If a supply is made, then the term to obtain the refund only starts once the correct VAT invoice is issued. It is noted that in Kreuzmayr (C-628/16), the CJEU confirmed that VAT amounts charged erroneously cannot be deducted.
In certain EU Member States different terms and conditions are applied, such as that the right to deduct input arises at the moment when pre payments are made. Subject to the applicable provisions, on the basis of this ruling the position may be taken that this is not correct, which may of course have an impact on the applicable term in which a refund of correctly charged input VAT can be obtained.