Background
H GmbH, a German company, purchased motorboats from another German entity, E-GmbH. At the time of the sale, however, the boats were physically located in Italy, which meant that Italian VAT should have applied. Despite this, E-GmbH incorrectly invoiced German VAT, which H GmbH then claimed as a deduction in its German VAT return. Following a tax audit, this deduction was denied.
In 2014, E-GmbH was declared bankrupt. The liquidator corrected the invoices and requested a refund of the incorrectly charged German VAT from the tax authorities. The German tax authorities refunded the VAT to the bankruptcy estate of E-GmbH. However, no repayment of the German VAT was made to H GmbH, nor were revised invoices with Italian VAT issued, leaving H GmbH unable to claim a VAT refund in Italy.
H GmbH subsequently sought to reclaim the German VAT directly from the German tax authorities. This request was denied, and after a series of appeals, the case was ultimately referred to the Court of Justice of the European Union.
Preliminary Questions
The court was asked to address the following two key questions:
1. Can a purchaser of goods or services directly reclaim VAT from the tax authorities based on the CJEU's judgment of March 15, 2007 (Reemtsma Cigarettenfabriken, C-35/05, EU:C:2007:167), under the following conditions:
a) The supplier, located in the same country as the purchaser, issued an invoice with domestic VAT that was correctly paid to the tax authorities.
b) The service for which VAT was charged was actually provided in another EU member state and should have been subject to VAT there.
c) The purchaser was denied a VAT deduction because the VAT was not due domestically.
d) The supplier corrected the invoice by removing the domestic VAT and reducing the total invoice by the originally charged VAT.
e) The supplier has since been declared bankrupt, preventing the purchaser from reclaiming the VAT from the insolvent supplier.
f) The supplier still has the option to register for VAT in the other member state and issue a new invoice with the correct VAT, allowing the purchaser to deduct input VAT in that state under Directive 2008/9/EC.
2. Does the fact that the tax authorities have already refunded the VAT to the supplier's bankruptcy estate affect the purchaser's right to request a direct refund?
In essence, the court was asked to determine whether, under these circumstances, a purchaser can directly seek a refund of incorrectly paid VAT from the tax authorities, even if the VAT has already been refunded to the supplier's bankruptcy estate.
Court's Assessment
The issue is that "incorrectly charged VAT" must, in principle, be credited by the supplier (according to VAT Directive principles). In such a case, the supplier would request a refund and reimburse the customer. The Court of Justice previously ruled in Reemtsma that a purchaser should be able to request a VAT refund directly from the tax authorities if it is impossible or extremely difficult to reclaim the VAT, especially in cases of supplier insolvency.
The Court finds the situation in this case more complex than in Reemtsma, as the tax authorities have already refunded the incorrectly paid VAT to the supplier's bankruptcy estate. Therefore, the Court concludes that the Reemtsma doctrine cannot be applied, as it would lead to double reimbursement.
The Court reiterates that the bankrupt supplier is entitled to a VAT refund for incorrectly paid VAT, a right intended to ensure the economic neutrality of the VAT system. The liquidation of the supplier, as in the Reemtsma ruling, is deemed irrelevant in this case because the refund has already been handled through the bankruptcy estate. The Reemtsma doctrine does not alter the ranking of creditors in a liquidation process. The Court also emphasizes that the purchaser could have filed a civil claim against the liquidator to obtain a correct VAT invoice, but did not do so.
According to the Court, the supplier could have registered for VAT in the country where the VAT was due, and the purchaser could have filed a civil claim against the liquidator to obtain a correct invoice. Although this seems theoretical, the Court attaches great importance to this possibility. Since these options were not pursued, the Court concludes that the purchaser in this case has no right to directly request a VAT refund from the tax authorities.
Commentary
The Court’s ruling refines existing case law: a purchaser who is incorrectly charged VAT cannot automatically reclaim this VAT from the tax authorities if the VAT has already been refunded to the supplier's bankruptcy estate, and the purchaser has not exhausted all civil law options to reclaim the VAT through other legal means.
This ruling highlights the importance for purchasers to carefully check the VAT treatment on incoming invoices, especially in cross-border transactions where complexity can increase and errors can lead to significant VAT risks.
Incorrectly charged VAT can not only result in non-deductible VAT but also in complex legal procedures, both with the supplier and the tax authorities, as this case illustrates.