On 8 September 2022, an opinion was issued by Juliane Kokott, the CJEU Advocate General, in the case C-378/21 P GmbH v. Finanzamt Österreich, involving a taxpayer mistakenly charging VAT at a higher rate for the services provided to its customers.

Fact of the Case

P GmbH is a company registered under Austrian law operating a playground whose customers include primarily individuals – i.e. entities not having a right to deduct VAT. In 2019, the Company mistakenly charged VAT at the base rate of 20%. Under the national legislation, however, a reduced rate of 13% should have been applied. Therefore, the Company corrected its annual VAT return for 2019 and sought a tax refund. The tax authority refused to refund the tax arguing that the VAT had ultimately been paid by the customers, who bear the economic burden of the tax in B2C transactions. Obtaining a refund would lead to an unjustified enrichment.

Proceedings before the Court of Justice of the European Union (CJEU)

The proceedings before the CJEU involves primarily two issues: whether overpaid VAT calculated at too high a rate can be refunded, and whether the correction of the sale receipts, being difficult due to a lack of the customers’ details, would be a prerequisite for correcting the settlements with the tax authority and recovering the overpaid tax.

Legal grounds

According to Art. 203 of the VAT Directive: “VAT shall be payable by any person who enters the VAT on an invoice”. This provision has been implemented into the Polish legal system by Art. 108 of the act on the tax on goods and services, viz.: “VAT shall be payable by a legal person, organisational unit not having legal personality or natural person who enters the VAT on an invoice”.

Position of Advocate General

In Advocate General’s opinion, the principle of neutrality of VAT entails a taxpayer’s right to correct the amount of tax entered on an invoice in an incorrect amount. Where a wrong VAT rate is applied merely due to an incorrect legal assessment, for instance on account of the complexity of the national legislation or where the applicable VAT rate is being questioned, and the taxpayer decides on what later proves to be incorrect, then – according to Advocate General, it may be assumed that the issuer of the invoice acted bona fide. Correcting the relevant returns and obtaining a refund of so overpaid tax are thus justified.

The above line of argument is further substantiated by the fact that, firstly, it must not be maintained that the consumer incurred too high an amount of tax as the tax was actually paid at a correct rate, being merely entered on the invoice and calculated in an incorrect amount.  Secondly, in the case in question, P GmbH’s competitors charging the same price would have been taxable with VAT at a rate only amounting to 13/113 of the price, rather than 20/120 of the price. As a result, P GmbH’s profit margin was lower than its competitors’.

Quite importantly, correcting the sale receipts, being somewhat difficult due to a lack of the customers’ details, is not a prerequisite for correcting the settlements with the tax authority and recovering the overpaid tax.

Impact of the opinion on the application of tax law in Poland

As regards Polish taxpayers, the CJEU judgment, provided it is in line with General Advocate’s opinion, may allow them to seek refunds of unduly overpaid tax, specifically where determining a proper VAT rate was, or is, ambiguous. This may occur, by way of example, in respect of: takeaway meals; groceries; supply, construction, repair or retrofitting of a building qualified as part of the social housing programme or sale of real estate.

If the CJEU affirms the statements made in the opinion, taxpayers will be in a position to resume their respective proceedings and have their situations reconsidered.

Katarzyna Czerwińska-Sabała, Tax Consultant, ATA Tax Sp. z o.o.

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