Input tax deduction only if in possession of an invoice – but what constitutes an invoice?

11/01/2022

The Court of Justice of the European Union (CJEU) made clear in its judgment of 21 October 2021 (C-80/20) that a taxable person must be in possession of an invoice to be entitled to apply for a refund of input tax.  The CJEU defines the term “invoice” quite broadly.

Facts: In 2012, the claimant (a company based in France) purchased production equipment from a Romanian company and received invoices with Romanian VAT, the refund of which the claimant requested. However, the application for the refund of this input tax was rejected on the grounds that the invoices submitted did not meet the legal invoicing requirements. Subsequently, the Romanian company cancelled these incorrect invoices and issued new invoices in 2015. The claimant applied for an input tax refund for the 2015 refund period on the basis of these invoices. However, this refund application was rejected on the grounds that the input tax related to the incorrect taxable period and that a final decision on the input tax refund had already been made. The French company appealed against this rejection before the Romanian court. The Romanian Tax Court had various doubts as to interpretation and therefore referred the case to the CJEU to determine the relevant date for the refund of input tax in this case.

Background: The CJEU has already dealt with the importance of the invoice for the deduction of input tax on several occasions in the past. In the two judgments of 15 September 2016 (Senatex, C-518/14 and Barlis, C-516/14), the CJEU relaxed the requirements for a valid invoice for the deduction of input tax, in particular where there is incorrect or missing information, in favour of the taxable person. The subsequent CJEU ruling of 21 November 2018 (Vădan, C-664/16) even seemed to suggest that the submission of invoices was not even mandatory for the deduction of input tax.

Judgment: In its current decision, the CJEU first discusses some of the essential principles underlying the deduction of input tax. In doing so, the Court again clarifies that, in principle, input tax arises in the same period in which the tax liability relating to the underlying turnover transaction also arises. However, the right to deduct input tax may only be exercised in the period in which the taxable person has an invoice within the meaning of VAT law. In principle, it is irrelevant if the invoice does not meet all the formal requirements of VAT law. However, a document that is so defective that the national tax administration lacks the information necessary to justify a refund claim is not an invoice.

In the present case, however, the invoices issued in 2012 had been sufficient to constitute an invoice under the above definition. Thus, the Romanian authorities wrongly rejected the input tax refund for 2012. However, the claimant had not appealed against this rejection. Therefore, the 2012 taxation period was already final and a refund was thus procedurally no longer possible. The CJEU held that the claimant could not claim a refund of input tax in the 2015 taxable period due to the cancellation of the 2012 invoices and their reissuing in the 2015 calendar year. The rationale behind this is that a cancellation should have no effect on the tax accrual in 2012 because it is not based on any changes in the underlying supplies or consideration.

Practical tip: The latest CJEU ruling has again confirmed the principle that the right to deduct input tax must be exercised as soon as a document – in the form of an invoice or credit note – is available that meets the requirements of a basic invoice. In these cases, it is important to ensure that the contracting party corrects or completes the incorrect or incomplete information. Against this background, it remains essential that incoming invoices continue to be checked precisely, and this becomes even more important due to the risk of losing the right to deduct input tax, as was the case in this case.

Marcus Vörös, [email protected]