CJEU: No VAT liability based on the invoice in the case of supplies provided to final consumers
In a decision of 8 December 2022, Case C-378/21, P GmbH, the CJEU ruled that no VAT liability based on the invoice exists if the recipients of the respective supplies are private individuals, i.e., in case of “B2C” supplies. Given that no VAT liability based on the invoice was triggered, it is also not necessary to correct the invoice (that was issued with an excessive VAT rate) in order to decrease VAT liability. An invoice correction would have an ex nunc effect. The decision concerned the following Austrian case.
Underlying case
P GmbH (“P”) operated an indoor playground. As stated in the facts, the Company’s services were therefore provided exclusively to private individuals / final consumers, in particular families with children. P invoiced an excessive VAT rate of 20% by error. However, P’s services would have actually been subject to the reduced tax rate of 13%.
The dispute related to whether in such a case, where services are provided only to final consumers who are not entitled to input VAT deduction and where therefore there is no risk of a VAT loss, a VAT liability was triggered based on the VAT amount shown on the invoices issued to the customers.
CJEU ruling
The CJEU answered the question concerning VAT liability on the precondition that the recipients of the services provided by P were exclusively final consumers not entitled to input VAT deduction.
Based on this precondition, the CJEU denies that VAT liability was triggered based on the excessive VAT shown on the invoice because in the present case there is no risk of VAT loss given that P’s customers in the concerned fiscal year were exclusively final consumers who were not entitled to input VAT deduction. According to the CJEU judgement, Article 203 of the VAT Directive which specifies that the issuer of an invoice is liable for VAT charged is not applicable in such a case.
Practical implications
The CJEU’s ruling is decisive for companies concerned: If supplies of goods or services are provided solely to final consumers (and thus if the risk of VAT loss is therefore excluded), VAT liability is not triggered based on the amount of VAT charged that exceeds the amount of VAT resulting from the application of the correct tax rate, despite of invoicing of an excessive rate of tax. In cases of large numbers of sales in business with final consumers, which makes a correction of invoices in fact impossible, businesses can now receive the excess VAT paid to the tax authorities without invoice corrections. Further, claiming overpaid VAT back from the authorities would be possible with ex tunc effect given that no VAT liability was triggered at all (in contrast to cases of invoice corrections which take effect ex nunc).
However, this is likely to apply only in cases where the excessive VAT rate was invoiced in good faith (reference is made to the statements in the Opinion of the Advocate General on the possibility of invoice correction for companies who acted in good faith, paragraph 49 et seq.).
Furthermore, it is to be noted that in the B2C-business there are often agreements on gross prices in practice, so that even if the invoice for the final consumer is corrected, the correction of the excessive VAT towards the tax authorities would not lead to a refund towards the customer.
Naturally, it remains unclear how the CJEU would decide in a similar case if there was no agreement on gross prices on the one hand and if a correction of the invoice was still possible on the other hand. Another aspect that remains unclear is how to proceed in cases where supplies were provided to both businesses (“B2B”) and non-businesses (“B2C”). In this context, the Advocate General had proposed to determine the proportion of such cases by estimate, however, the CJEU did not elaborate further on this aspect.
The follow-up decision of the Austrian Federal Finance Court (BFG) is still pending.
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