ECJ referral: Partial refund claim of VAT overpaid to the supplier?
The Muenster Tax Court submitted to the European Court of Justice (ECJ) a request for a preliminary ruling and asked whether the taxpayer (plaintiff) has a direct claim towards the tax authorities for VAT erroneously charged to him at a higher rate than the applicable statutory rate, even if there is still the possibility that the supplier himself might apply for a partial refund at his competent tax office following the subsequent issuance of corrected invoices.
The plaintiff purchased wood from his suppliers at 19% VAT and sold it to his customers at a reduced VAT rate of 7%. The Tax Court of Muenster confirmed that the plaintiff had correctly applied the reduced VAT rate on his deliveries of wood, but at the same time pointed out that the input services from his suppliers were likewise to be taxed at the reduced rate of 7%. As a result, the tax office reduced the plaintiff's input VAT deduction and demanded from him repayment of the difference amount.
The plaintiff then applied to the tax office for a waiver for reasonable cause of the difference VAT, citing the ECJ "Reemtsma” ruling from 2007. The tax office refused because the plaintiff himself was responsible for the situation, as he was not entitled at the time to resell the goods at a different VAT rate.
In the Reemtsma decision of 15 March 2007 (C-35/05) the ECJ had to decide whether VAT invoiced and paid in error can be refunded under the Eighth Directive, even though it would not have been deductible under the Sixth Directive, and if a non-resident taxable person must be allowed to bring a claim directly against the authority which collected the tax, or whether it suffices that he should be entitled to act indirectly by claiming from the supplier who had invoiced the tax (and who could in turn claim against the tax authority). The ECJ held that where reimbursement of the value added tax would become impossible or excessively difficult, the Member States must provide for the instruments necessary to enable that recipient to recover the unduly invoiced tax in order to respect the principle of effectiveness.
Decision / request for preliminary ruling
The Muenster Tax Court suspended the proceedings and referred the question to the ECJ as to whether - in the circumstances of the case in dispute - a direct claim for refund of the difference in VAT against the tax office would in accordance with EU guidelines on this matter.
In principle, it is acceptable under EU law that, in the case of incorrectly invoiced VAT, the supplier has a refund claim against the tax authority and the recipient of the service is left to take civil action against the supplier. However, pursuant to the "Reemtsma ruling" (as well as other subsequent decisions of the ECJ) and under the principle of effectiveness, the recipient of the service himself (here: the plaintiff) may have a direct claim for reimbursement against the tax authority if the reimbursement would be "impossible or unduly difficult”. Under German law, this claim could be pursued on grounds of a waiver of tax for reasonable cause, based on Sections 163, 229 Fiscal Code. The Muenster Tax Court has raised doubts as to whether the ECJ case law, which had always involved cases of insolvency of the suppliers, would apply here, as in the case at hand the suppliers are not insolvent.
While it is true that the plaintiff is no longer able to enforce his claims against his suppliers under civil law due to the statute of limitations, the suppliers nevertheless have an unlimited period in which to correct their invoices in accordance with Section 14c (1) of the German VAT Act (Umsatzsteuergesetz) and thus may obtain a refund of the overpaid VAT from their competent tax office. If the plaintiff were to be granted a direct claim, the tax office would have to demand repayment from him which could lead to a double refund if, for example, the plaintiff had become insolvent in the meantime.
The Muenster Tax Court assumes, pending the ultimate ECJ decision in this matter, that a recipient of services must endeavor to obtain an accurate invoice with separately stated VAT within the limitation period under civil law and that, without such a valid invoice, he cannot assert and enforce a claim for VAT refund vis-a-vis the tax authority.
Tax Court of Muenster, decision (order for preliminary ruling) of 27 June 2022 (case ref. 15 K 2327/20 AO); newsletter July 2022.