Court of Justice of the EU

In two joined cases of CS and technoRent International GmbH (C-844/19) the Court was asked whether a refund resulting from an adjustment of the taxable amount must, like a refund of excess VAT, give rise to a right to the payment of interest where it is not made within a reasonable period of time by the tax authority even where the national law does not provide for such an interest payment.

The Court noted that while the Member States have a certain freedom in determining the conditions for refunding excess input tax, those conditions cannot undermine the principle of fiscal neutrality by making the taxable person bear the burden of the VAT in whole or in part. This, said the Court, implies that the refund must be made within a reasonable period of time by a payment in liquid funds or equivalent means, and that, in any event, the method of refund adopted must not entail any financial risk for the taxable person.

Even though the VAT directive does not lay down an obligation to pay interest on excess input tax to be refunded or specify the date from which such interest is payable, the principle of fiscal neutrality of the VAT system requires that the financial loss incurred due to a refund of excess VAT not being made within a reasonable period of time be compensated through the payment of default interest. The same is true, said the Court, in relation to the refund of VAT following from a reduction of the taxable amount.

It was accordingly for the referring court to do whatever it could within its jurisdiction to interpret national law (in this case Austria’s law) in conformity with EU law to give effect to the principle of fiscal neutrality.

DLA Piper comment: The CJEU again confirms the right of the taxpayer to receive default interest on input tax to be refunded, thus ensuring that the financial situation of the taxpayer is not negatively impacted in the process of waiting on his/her tax refund. Though it remains up to the local Member State to ensure that this right is implemented and correctly executed, the case does provide more comfort to taxpayers regarding their rights towards the local tax authorities.