On 21 March 2018 the ECJ ruled that EU Member States cannot deny a recovery of VAT that was charged to and paid by a taxable person several years after goods were supplied on the grounds that the national limitation period to exercise the right to recover VAT began to run from the date of the supply and expired before the request for VAT recovery was made, if it was objectively impossible for the taxable person to exercise its right to recover VAT before the limitation period expired (Volkswagen AG, C-533/16).
The case concerned goods that were supplied to Volkswagen between 2004 and 2010 in Slovakia. At the time of the supplies, the suppliers did not include VAT on the invoices that were issued as the suppliers considered the transactions not as supplies of goods but as ‘financial compensations’, which are exempt from VAT. In 2010, the suppliers realised that the transactions were not being carried out in accordance with their national VAT legislation. The suppliers issued new invoices charging VAT, filed supplementary tax returns for all years from 2004 to 2010, and paid the VAT due to the State Treasury. Volkswagen filed a claim to recover the (input) VAT on all revised invoices. The national VAT authorities in Slovakia however denied part of the VAT recovery as they held that the entitlement to VAT recovery arose on the date of delivery of the goods and that the right to claim VAT recovery for the period from 2004 to 2006 had consequently expired in accordance with the national legislative limitation period.
The ECJ ruled that although the right to deduct VAT arises at the same time as VAT becomes chargeable (i.e. in the case at hand at the moment that the goods were delivered), it only can be properly exercised once the VAT taxable person (Volkswagen) holds an invoice which mentions that VAT.
In the present case, the suppliers did not make any adjustments for VAT purposes until 2010 when they issued corrective invoices with VAT, sent supplementary tax returns to the competent national authority and paid the amount of VAT that was due to the State Treasury. In these circumstances, it was objectively impossible for Volkswagen to exercise its right to a refund before this adjustment, as, prior to that, it had neither been in possession of the invoices nor was it aware that the VAT was due. The ECJ also noted that the risk of tax evasion was non-existent in the case at hand as VAT had already been accounted for by the supplier in the framework of the regularization.
Consequently, the ECJ ruled that if a VAT taxable person is able to demonstrate that it was objectively impossible to exercise the right to recover VAT before the national limitation period expired, the EU member state in question cannot deny that VAT recovery solely because that national limitation period has expired.
According to Belgian VAT rules the right to recover VAT arises at the moment that the VAT becomes chargeable, i.e. in principle at the moment that the goods or services are supplied, unless an invoice was issued or advance payments were made.
The Volkswagen judgement could thus have significant consequences in Belgium as well, especially in cases were Belgian VAT is spontaneously adjusted by a supplier (or as a consequence of a tax audit) and whereby the supplier is regularizing its situation by charging its customers with Belgian VAT (or with a higher rate of VAT). In our view, the starting point of the limitation period of the right to recover VAT should be the same moment as the issuance of a corrective invoice and not the time when the transaction took place.
In addition, it could be questioned whether the discrepancy in Belgium between the limitation period for VAT recovery by the taxpayer (3 years) compared to the limitation period for the VAT authorities to claim VAT (up to 7 years in certain situations) is in line with the principle of equivalence in situations where no VAT evasion or VAT fraud can be established.
Based on this ECJ decision taxable persons should review if – and in which cases – the tax authorities have refused the right to refund or the right to deduct input VAT on the ground that the Belgian limitation period had been expired.