VAT deduction: invoice correction with retroactive effect JPA Tax Club Paris 2nd February 2017 ECJ Senatex VAT deduction: invoice correction with retroactive effect Mag. iur. Natascha Branz bn@fiebich.com Tel.: +43 316 324453-16

Contents ECJ, 15.09.2016 – C-518/14 – Senatex Facts Considerations of the ECJ Open questions Risks of retroactive effect Recommendations Discussion

ECJ, Senatex – Facts I Request for a preliminary ruling from Hanover-Nord Tax Office (Germany) concerns the interpretation of the Council Directive 2006/112/EC of 28th November 2006 on the common system of value added tax Senatex GmbH = wholesale textile business Tax returns 2008 – 2011 Deduction of input VAT in respect of commission statement (credit notes) issued to its commercial agents

ECJ, Senatex – Facts II 2013 On-the-spot check Deduction of input VAT not possible Reason Invoices/commission statements without addressee´s VAT registration number While the on-the-spot check commission statements have been corrected Nonetheless the tax office reduced the sums which Senatex was entitled to deduct as VAT and set interest for late payment Conditions for deduction had not been satisfied for those years, but were met only from the time of correction of the invoices in 2013 (ex nunc effect)

ECJ, Senatex – Considerations I Right to deduct input VAT… …immediately is a fundamental principle …must be exercised in respect of the period during which the right has arisen and the taxable person is in possession of an invoice Invoice correction with retroactive effect (ex tunc) No VAT deduction without an invoice (compare ECJ, 29.04.2004 – C-152/02 – Terra Baubedarf-Handel) Interest for late payment is contrary to the principle of neutrality Member states have power to lay down penalties for failure to comply with formal conditions for the exercise of the right of deduct VAT Member states can adopt measures to ensure the correct collection of VAT and to prevent evasion E.g.: Financial penalty proportionate to seriousness of the offence

ECJ, Senatex – Considerations II No formalism Right to deduct arises when substantive conditions are met, even if the taxable persons have failed to comply with some formal conditions Substantive condition The person concerned must be a taxable person within the meaning of the VAT directive The goods or services relied on to give entitlement to the right of deduction must be used by the taxable person for the purposes of his own taxed output transactions and those goods or services must be supplied by another taxable person as inputs Formal condition Proper invoice (e.g.: VAT number of the supplier)

ECJ, Senatex – Open questions No comment on the question as to when an invoice needs to be corrected For examples please see slide “discussion” Cancellation + invoicing a new invoice = Correction? Possible problem Argumentation of fiscal authority same situation as Terra Baubedarf-Handel (no invoice = no VAT deduction)

Risks of retroactive effect I Input VAT till corrected invoice deduction refused: can be achieved Input VAT amended tax notice appeal period deduction + interest has expired past past today Correction today with retroactive effect? Possible solution: Cancellation + issue a new invoice?

Risks of retroactive effect II Refund of VAT to taxable persons resident abroad: deadline for application No refund at the time the original invoice is corrected? Possible solution: cancellation + issue of a new invoice (?)

Recommendations Faulty invoices should be corrected immediately (no cancellation) Fiscal authorities will have to implement the decision Suppliers may have been liquidated, have merged or no longer be traceable

Discussion Current legal situation in JPA Member States (EU, non EU)? Does an invoice correction in your country have retroactive effects (ex tunc)? If YES, is there any restriction by when the invoice has to be corrected? Calendar year Till tax filing First assessment Final assessment In the course of an audit? Correction period Before the commencement/last hearing of the objection procedure Till the end of the prescriptive period …? Is there a difference between correction and cancellation?

Sources ECJ, 15.09.2016 – C-518/14 – Senatex: http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d2dc30d53fdf6388bafd4abe84a0cca08b2318ce.e34KaxiLc3qMb40Rch0SaxyKc350?text=&docid=183365&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=469199 ECJ, 29.04.2004 – C-152/02 – Terra Baubedarf-Handel: http://curia.europa.eu/juris/showPdf.jsf?text=&docid=49128&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=504855 VAT Newsletter 27/2016, Dr. Stefan Maunz http://www.kmlz.de/sites/default/files/VAT%20Newsletter%2027_2016.pdf

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