Advocate General

In Zipvit Ltd (C-156/20), the taxpayer supplied vitamins and minerals by mail order. The UK’s national postal service supplied the taxpayer with a number of postal services under contracts which had been individually negotiated. The contract between the taxpayer and the national postal service stated that the price was exclusive of VAT and that any VAT would be paid in addition. At the relevant time, both parties to the contract and the tax authority believed the supply of all postage services to be exempt. However, later, in TNT Post UK (C-357/07) the CJEU held that only those services of a public postal service which that service also provides as such, that is, the universal services provided in the public interest, are exempt from VAT. By contrast, those services which are provided on individually negotiated terms and are not subject to the requirements of the universal service are not exempt.

Following the judgment in TNT Post UK (C-357/07), the UK tax authority did not require relevant suppliers to account for VAT on past supplies since the recipients of the supplies would mostly have been entitled to recover the VAT. It was therefore considered disproportionately costly and administratively burdensome. In addition, the tax authority considered that it had created a legitimate expectation on the part of the national postal service that it was not required to collect VAT so that the postal service would have had a defence to an assessment.

The taxpayer however sought to recover input tax in respect of the postal services it received which should have been treated as taxable supplies. The taxpayer’s case is a test case and, as the Advocate General points out, if the taxpayer were to win, then many other recipients of supplies of postal services wrongly treated as exempt would enjoy a windfall profit.

The Advocate General opined that the requirement to possess a VAT invoice is a substantive requirement for the right to deduct VAT in a given amount and serves to implement the principle of neutrality enshrined in VAT law. A right to deduct may arise even where the VAT invoice does not have all of the prescribed details but as the taxpayer had no invoice at all separately stating VAT, no right to deduct arose. Even though this finding was enough to determine the case, the Advocate General went on to analyse the other questions referred to the Court and opined that:

• the “VAT due or paid” referred to in the right of deduction set out in the VAT Directive refers to the VAT due or paid by the supplier and not the “VAT” paid as part of the price by the recipient of the supply;
• the taxable amount for a supply is the consideration actually received which already includes VAT; and
• the right of deduction of the recipient of a supply is independent of the actual taxation of the service provider so it is irrelevant to the issue of the right to deduct whether the supplier had a successful defence to its own taxation.

DLA Piper comment: In previous opinions, the same Advocate General has opined that five items are absolute requirements in order for a VAT invoice to be used as evidence of a right to deduct. These are the name of the supplier, the recipient of the supply, the goods or services supplied, the price and the VAT. In this case, she continues to emphasize the importance of the VAT invoice, this time leading to the conclusion that the absence of a VAT invoice was fatal to the taxpayer’s claim. In other words, the recipient of a supply who has not even endeavoured to obtain a corresponding invoice stating the VAT separately within the limitation period under civil law cannot claim to deduct input tax against the tax authorities without such an invoice. It hence appears not necessary for the CJEU to also consider the potential impact on any future reasons of administrative simplification, because many of the recipients of the supply would have a right of deduction. Otherwise, the case won by the taxpayer in the case of C-156/20 has a potential for a Pyrrhic victory to future taxpayers where the tax authorities would likely no longer apply any administrative simplification.