A breakthrough judgement of the CJEU on VAT settlements in respect of intra-Community acquisition of goods
On March 18, 2021 the Court of Justice of the European Union issued a ruling in the case no. C-895/19 in response to the application for a preliminary ruling posed by the Voivodship Administrative Court in Gliwice. The question concerned the compliance of VAT Act with the EU VAT Directive regarding as regards making the right to deduct input VAT on intra-Community acquisitions of goods dependent on the declaration of output tax within a three-month period.
The proceeding concerned a company which applied to the Head of the National Revenue Information Service (KIS Head) for an individual tax ruling concerning the obligation to disclose output VAT on intra-Community acquisitions of goods in VAT returns. The company had frequently reported output tax after the lapse of the three-month period from the end of the month in which the tax obligation arose with respect to the acquired goods. It was due to the difficulties common among taxpayers caused by a delay in receiving an invoice, incorrect classification of the transactions or mistakes made by those preparing VAT registers and declarations. Therefore, the company asked whether it could deduct input tax on intra-Community acquisitions of goods in the same settlement period in which the output tax was shown, if it corrected the VAT declaration after the expiry of the three-month period stipulated in Art. 86 (10b) (2) (b) of the VAT Act.
The Company indicated that the national regulations impose additional conditions, which are not provided for in the community regulations. Thus they violate the principles of fiscal neutrality and proportionality. However, the KIS Head stated that such a contradiction does not occur. According to the authority, Art. 178 of the VAT Directive makes it possible for Member States to introduce certain formal requirements with respect to the right to deduct.
The CJEU judgement
After a complaint was filed against the ruling and a motion for a preliminary ruling was filed by the Voivodship Administrative Court in Gliwice, the CJEU fully shared the position of the applicant company. In the Court's opinion, national legislation must not preclude the deduction of input VAT on intra-Community acquisitions in the same period as the settlement of the same amount of VAT on account of a breach of a formal requirement without taking into account all relevant circumstances, and in particular the good faith of the taxpayer. Thus, the provisions of the VAT Act which make the right to deduct input tax dependent on the settlement of the output tax within three months of the end of the month in which the tax obligation arose are contrary to the VAT Directive.
Implications of the ruling
For taxpayers, this is an extraordinarily important judgment, as it opens the way to claim reimbursement of interest on tax arrears paid in previous periods. Although the ruling concerned intra-Community acquisition of goods, it could also be applied to other transactions subject to the reverse charge mechanism. The ruling should also have a positive impact on the current system of settling VAT on intra-Community acquisitions. Declaring output and input VAT in the same period may help avoid the burdensome obligation of repeated correction of returns.
Jakub Janicki, Tax Consultant, ATA Tax Sp. z o.o.
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