In Budimex SA (C224/18), the CJEU was asked by a Polish Court to determine the time of supply in relation to a construction contract where no invoice was issued in accordance with articles 63 and 66 of the Principal VAT Directive (PVD), which provide that the chargeable event for VAT purposes is when the services are supplied. The tax authority argued that VAT became chargeable after 30 days of the performance of the works, while the taxpayer argued that the acceptance of the works should be the point of reference as the contract gave the client the right to check the construction/installation work before accepting it and gave the supplier an obligation to carry out any necessary modifications.
The Court said that, “in so far as it is not possible to ascertain the consideration due by the customer before the customer has accepted the construction or installation work, the VAT on such services cannot be chargeable before that acceptance.” The court however made a proviso that having a contractual requirement for acceptance of the work should reflect “the conventional rules and standards in the field in which the service is supplied.”
DLA Piper Comment: This is a sensible decision. The basic time of supply for services is generally the time the services have been completed subject to early invoicing or early payment. Where the customer has to both accept the works contractually, and can ask for modifications which affect price, the services are clearly not complete. This is yet another case where the contractual analysis has been found to be critical to the VAT treatment.
In A-PACK CZ s.r.o. (C-127/18) the court was asked to consider a law on bad debt relief enacted in the Czech Republic that did not allow any adjustment to be made to the output tax where the debtor had ceased to be a taxable person when it allowed creditors to make such an adjustment where goods and services were not (wholly) paid for and if the insolvency court had initiated proceedings against the debtor. The court was asked whether the rule conflicted with the principles of fiscal neutrality and proportionality in the Principal VAT Directive.
The Court noted that it was one of the fundamental principles of VAT that the taxable amount is the consideration actually received and that the tax authority may not collect an amount of VAT exceeding the tax that the taxable person received, in line with article 90 Principal VAT Directive which provides that the taxable amount shall be reduced in the case of “cancellation, refusal or total or partial non-payment.” The court found the Czech law requirement that the debtor remained a taxable person to be contrary to the Principal VAT Directive, as a debtor ceasing to be a taxable person in the context of insolvency proceedings was evidence of the definitive nature of non-payment.
DLA Piper Comment: We agree that VAT bad debt relief should not depend on the status of the debtor as a taxable person. It should however be noted that if the debtor has reclaimed the input VAT, before it ceased to be a taxable person, there is of course a risk for the tax authority of a mismatch, because it will still be obliged to refund the VAT bad debt relief to the supplier, but will be unable to recover the corresponding input VAT credit from the debtor. In the absence of abuse, however, that would seem to accord with established VAT principles.
In Sea Chefs Cruise Services (C-133/18) the court determined that Article 20(2) of Council Directive 2008/9/EC relating to the provision of certain information in respect of cross-border VAT refunds did not create a mandatory time limit. Accordingly, taxable persons who were unable to provide the information requested by the country of refund would not forfeit their right to a refund. They may regularize their refund application in appeal proceedings before the refunding member state by submitting the information previously requested by that member state in order to obtain the refund.
DLA Piper Comment: This is another sensible result. The fundamental right to deduct input VAT should not be defeated by a breach of a formal (as opposed to a substantive) requirement. Disputes continue as to what is a mere formal requirement and what is a substantive requirement.
In Związek Gmin Zagłębia Miedziowego w Polkowicach (C-566/17) the taxpayer was a local public authority that carried out both non-business activities and taxable activities. In carrying out all these activities, the taxpayer incurred capital and revenue expenditure that related to both types of activities and sought to deduct all the input tax incurred as the Polish VAT law did not contain any allocation rule for apportioning input taxes between economic and non-economic activities. The Polish tax authority challenged this. The CJEU ruled that such a practice would be contrary to the principles of the VAT Directive.
DLA Piper Comment: It is a fundamental principle of VAT that input tax attributable to non-business activities is not deductible, and notwithstanding the absence of an apportionment provision in the Polish legislation, it is correct that this was effectively implied by the court.
In PORR Építési Kft (C-691/17) the taxpayer had wrongly paid VAT on invoices where the relevant transactions should have been subject to the reverse charge and sought to claim the VAT paid as input tax. The court noted that where the VAT has been paid over to the tax authority and it is impossible or excessively difficult for the recipient of the service to obtain reimbursement from the supplier, (for example where the supplier is insolvent – as was the case for one of the suppliers in this case), the principle of effectiveness may require that the tax authority reimburses the wrongly paid VAT to the recipient of the services. However, the taxpayer who wrongly paid VAT would have to seek such reimbursement from the tax authority under a different procedure from the one under which input tax would normally be reclaimed. The tax authority was therefore entitled to reject the taxpayer's claim for repayment of input tax.
DLA Piper Comment: On the surface this is a harsh case, as the taxpayer had generally paid over VAT to the supplier, but the parties had mistakenly omitted to treat the supply as subject to the reverse charge provisions instead. It is a warning to ensure that situations where the reverse charge applies must be identified as errors will not be overlooked. The fact that the tax authority may not be out of pocket is not a factor. From a technical perspective, the court said that the taxpayer had failed to pay the VAT to the tax authority as required by the reverse charge, which enables the tax authority to police it. The taxpayer had paid VAT to the supplier which was not “due” and the right to deduct only applies to VAT which is “due.” The decision is correct technically, but harsh.