Stop internal EU rules limiting VAT corrections

The European Court of Justice, in Case C-835/18, held that national VAT rules which prevent, or make it excessively difficult for a taxpayer, to correct and claim a refund of the tax incorrectly charged on the invoice are unlawful because they are contrary to European rules and the principles of fiscal neutrality, effectiveness and proportionality related to  VAT system.

The case involved a Romanian company making intra-Community supplies of goods, not taxable for VAT purposes, to a German company. Following an assessment by the tax authorities, the Romanian company, unable to prove that the goods had left the territory of the State, modified the invoices previously issued and paid the higher tax. As it turned out that the German company was identified for VAT purposes in Romania and that, therefore, the supplies of goods were covered by the reverse-charge scheme, the Romanian company corrected the invoices again by applying the reverse charge and requesting a VAT refund. The Administration, however, rejected the request for reimbursement on the grounds that the assessment measure was final and had not been challenged in time.

This case, which has been examined by the European Court of Justice, has allowed to underline the importance of certain principles.

First, the Court pointed out that the principle of VAT neutrality means that where the taxable person has realised the error and remedied it, there is no risk of loss of revenue: the tax unduly charged can be corrected and refunded.

Paying attention to the principle of effectiveness, the Court, while aware of the need to put a time limit on the taxable person’s request for reimbursement, has stated that all those national rules or practices which preclude the possibility of modifying invoices issued and making use of them for the reimbursement purposes are unlawful. In this way, if the taxable person subsequently becomes aware of elements that would allow him to exercise the right of deduction, he can always correct the wrongly invoiced transactions and claim a refund of VAT, provided that this is done within the time-limits laid down by national rules.

In conclusion, the Court also recalled that the principle of proportionality allows Member States to impose sanctions related to non-compliance with formal obligations, but at the same time requires that other general principles (in particular that of neutrality) established by European law focused on the VAT system should not be undermined.


Alessandro Filippo Consonni