CJEU: No retroactive invoice correction in cases of triangular transactions
The CJEU had to decide on the possibility of invoice corrections with retroactive effect (“ex tunc effect”) in cases of triangular transactions. In its recent ruling, the CJEU denied the retroactive effect of invoice corrections in case of triangular transactions. The CJEU ruling concerned an Austrian case. In its decision of 8 December 2022, Case C-247/21, the CJEU confirms the current Austrian practice that corrections in case of triangular transactions are only possible with ex nunc effect.
Underlying case
Luxury Trust Automobil (“Luxury”) is a company domiciled in Austria. Luxury purchased vehicles inter alia from a supplier in the United Kingdom, then an EU member, and sold them to M sro in the Czech Republic. Transportation of the cars was organised directly from the UK to CZ. All three involved companies acted under the VAT ID number of their respective domicile country. Invoices from Luxury to M sro included a reference to the existence of a triangular transaction, as did the recapitulative statements.
The application of the simplification rule for triangular transactions was under dispute because the invoices did not include a reference to the tax liability being shifted to M sro.
Consequently, the CJEU had to decide whether the recipient has been determined as tax debtor and as such is liable for payment of VAT in case the invoice does not include a specific reference to the shift of VAT liability but does include a reference to the existence of a triangular transaction. If that question is answered negatively, the CJEU was asked to further clarify whether the invoices can be amended, whether the amended invoice must be received by the recipient of the invoice and whether such an amendment of an invoice has a retroactive effect (“ex tunc”).
Furthermore, the CJEU was asked for clarification which member states’ legal norms are applicable, i.e., whether the legal norms of the member state which would apply without application of the rules for triangular transactions, or whether the legal norms of the member state which would apply in case of application of rules on triangular transactions would apply.
Decision of the CJEU
In response to the first question, the CJEU states that in this context it is necessary to consider not only the wording of Article 42 of the VAT Directive, but also the context of the provision and the objective pursued by the rules. Specifically, it is a derogation of Article 41 of the VAT Directive and its application is optional.
Thus, the intermediary’s invoice is strictly required to include a reference to the transfer of the tax liability in order to designate the recipient within a triangular transaction as being liable for VAT.
However, if one of the prerequisites for the application of the rules on triangular transactions is not fulfilled – in this case, the designation of the recipient as being liable for VAT – the amendment of an invoice cannot qualify as “correction” , but rather qualifies as initial issuance of an invoice.
The CJEU did not have to elaborate further on the third question concerning the applicable legal norms.
Implications in practice
If the prerequisites for the existence of a triangular transaction are not met, the transaction qualifies as a chain transaction. The use of a VAT ID other than that of the Member State of destination therefore results in a cumulative intra-Community acquisition in the VAT ID Member State for the intermediary. Additionally, VAT consequences arise in the Member State of destination of the goods. That applies until the intermediary proofs taxation in the Member State of destination.
Following the current Austrian practice, it is possible under certain conditions to correct the VAT liability resulting from the cumulative intra-Community acquisition in case of failed triangular transactions. However, the correction only has an “ex nunc” effect instead of “ex tunc”, i.e., the rules on triangular transactions are not applied with retroactive effect, solely the VAT liability resulting from the cumulative intra-Community acquisition (without input VAT deduction) may be corrected if proof of correct taxation in the Member State of destination of the goods is provided. Therefore, the intermediary is confronted not only with the administrative and financial consequences arising from VAT obligations in the Member State of destination of the goods, but usually, from an Austrian VAT point of view, late payment penalties assessed cannot be cancelled due to the ex nunc effect of the corrections.
Thus, the practice of non-amendment of a failed triangular transaction taking effect ex nunc was (unfortunately) confirmed by the CJEU in the present decision.
