Possibility of recovering overpaid VAT in the case of consumer sales taxed with an incorrect VAT rate (case C-378/21 P GmbH vs. Finanzamt Österreich)

On September 8, 2022, the Advocate General of the Court of Justice of the European Union (CJEU), Juliane Kokott, issued an opinion in the case C-378/21 P GmbH v Finanzamt Österreich, concerning a taxpayer who mistakenly calculated VAT at an inflated rate for services provided to their clients.

Factual Background

P GmbH is an Austrian company operating a playground, mainly serving consumers who do not have the right to deduct VAT. In 2019, the company mistakenly calculated VAT at the standard rate of 20%. However, according to national regulations, the reduced rate of 13% should have been applied. Consequently, the company corrected its annual VAT return for 2019 and applied for a refund. The tax authority refused the refund, arguing that the VAT had ultimately been borne by the customers in business-to-consumer (B2C) transactions, and granting a refund would lead to unjust enrichment.

Proceedings before the CJEU

The proceedings before the CJEU primarily address two issues: the possibility of refunding overpaid VAT calculated based on an inflated rate and whether correcting sales documents, hindered by a lack of recipient data, would be a necessary condition for adjusting settlements with the tax authorities and recovering the tax.

Legal Provisions: According to Article 203 of the VAT Directive: “Any person who shows VAT on an invoice is obliged to pay VAT.” The implementation of this provision into Polish law is regulated by Article 108 of the Value Added Tax Act, stating that: “In the case where a legal person, organizational unit without legal personality, or natural person issues an invoice showing the amount of tax, they are obliged to pay it.”

Position of the Advocate General

In the Advocate General’s assessment, the principle of VAT neutrality gives the taxpayer the right to correct VAT that has been incorrectly shown on an invoice. If the incorrect tax rate was applied solely due to a mistaken legal interpretation, such as the complexity of national law or when the applicable tax rate is disputed, and the taxpayer decides to accept what later proves to be incorrect, the Advocate General presumes that the issuer of the invoice acted in good faith. In such cases, correcting the settlements and refunding overpaid tax are justified.

This argument is supported by the fact that, firstly, it cannot be concluded that the final consumer bore too much tax because the tax was, in fact, paid at the correct rate; it was merely stated on the invoice and calculated at an inflated value. Secondly, in the analyzed case, competing companies charging the same price as P GmbH would be subject to VAT at a rate of only 13/113 of the price, not 20/120. As a result, P GmbH achieved a lower profit margin than its competitors.

Importantly, correcting sales documents, hindered by a lack of recipient data, is not a necessary condition for adjusting settlements with the tax authorities and recovering the tax in this case.

Impact of the Opinion on the Application of Tax Law in Poland

For Polish taxpayers, if the CJEU judgment aligns with the Advocate General’s opinion, it may enable them to seek refunds of wrongly overpaid tax, especially when determining the correct VAT rate has been or was unclear. This is particularly relevant in areas such as: take-out meals; the food industry; supply, construction, renovation, and modernization of buildings covered by social housing programs; or real estate sales.

If the CJEU’s position aligns with the arguments in the opinion, taxpayers will have the opportunity to reopen proceedings and have their situations reconsidered.