CJEU Rules on Conditions for VAT Refund

Charles Riordan
January 25, 2021

The Court of Justice of the European Union (CJEU) has ruled that Member States must accept, as formally submitted, VAT refund requests that contain invoice identifiers other than sequential invoice numbers.

In case C-346/19 (Judgment of 17 December 2020), an Austrian taxpayer’s VAT Refund application was rejected by Germany’s Federal Central Tax Office, on the grounds that the “invoice numbers” listed on the application form were reference numbers rather than sequential invoice numbers.

The Austrian taxpayer challenged the notice, but the tax office ruled that the reference numbers didn’t comply with legal requirements and that the taxpayer had therefore failed to formally submit a valid refund request within the statutory time period allowed.

The CJEU disagreed, holding that a refund application under these circumstances must be considered validly submitted. In the court’s view, the substantive requirements of the application were satisfied, given that the reference numbers provided by the taxpayer allowed the invoices to be identified.

The court thought it particularly relevant that the Federal Central Tax Office had the ability to request further information, including copies of the original invoices, if it felt that the information provided by the taxpayer was insufficient to grant the refund. Declaring the application invalid without making a request for further information was a disproportionate penalty for the failure to comply with a purely formal requirement.

Ensuring VAT neutrality across the EU

This is not the first time that the CJEU has scrutinized the German tax authorities’ refund practices. In C371/19 (Judgment of 18 November 2020), the court held that the German authorities had violated the principle of VAT neutrality by systematically refusing to request information missing from VAT refund applications, such as copies of invoices or import documents. Instead, the authorities would immediately reject the applications, just as in C-346/19.

The court noted that the principle of VAT neutrality requires that a refund must be granted when all substantive conditions for the refund are fulfilled and that applicants must be given every opportunity to provide information needed to support a substantive claim. This ensures a taxpayer’s right to a settlement of VAT already paid is protected to the greatest extent possible.

Although the CJEU’s ruling in both cases was favorable for taxpayers, the court emphasized both times that failure to comply with a formal requirement could still prove fatal to an application if not corrected.

In C346/19, for example, the court noted that the tax office could officially request sequential invoice numbers from the taxpayer and could reject the application if those numbers weren’t provided within a month of the request.

Businesses need to understand and comply with tax authority regulations, even if a requirement is formal rather than substantive.

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Charles Riordan

Charles Riordan is a member of the Regulatory Analysis team at Sovos specializing in international taxation, with a focus on Value Added Tax systems in the European Union. Charles received his J.D. from Boston College Law School in 2013 and is an active member of the Massachusetts Bar.
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