ECJ on triangular transactions – still no retroactive invoice adjustment

Following the submission of an Austrian case, the ECJ recently had to rule on the possibility of a retroactive invoice adjustment in triangular transactions for VAT purposes and denied this. In its ruling of 8 December 2022, Rs C-247/21, the ECJ thus confirms the previous Austrian practice that the reorganisation of triangular transactions cannot be made retroactively.

Luxury Trust Automobil (“Luxury”), a company based in Austria, purchased vehicles from, among others, a supplier in the United Kingdom (UK), at that time still an EU member, and resold them to M sro in the Czech Republic (CZ). The transport was directly from the UK to CZ. The three traders involved each used the VAT number of their country of residence. The invoices from Luxury to M sro contained a reference to the existence of a triangular transaction, and the summary declarations were also issued with a reference to the existence of a triangular transaction.

The application of the simplification rule for triangular transactions was disputed, as the reference to the transfer of the tax liability to the M sro was missing on the invoices.

The ECJ therefore had to decide,

1. whether the recipient was also liable for tax if the invoice referred to the existence of a triangular transaction.
2. If this question was answered in the negative, it also had to be clarified whether a subsequent correction of the invoice was possible, whether such an invoice correction had to be received by the recipient of the invoice and whether such an invoice correction had retroactive effect (“ex tunc”).
3. Furthermore, the ECJ was asked to clarify the question of whether the legal provisions of the Member State that would be applicable in the absence of the triangular transaction rule or the legal provisions of the Member State that would be applicable in the event of the application of the triangular transaction rule were applicable.

In its ruling of 8 December 2002 (Case C-247/21, Luxury Trust Automobil GmbH), the ECJ stated in answer to the first question that not only the wording of Article 42 of the VAT Directive must be taken into account, but also the context of the provision and the objective pursued by the regulation. It is a provision that deviates from Art 41 of the VAT Directive, which in particular can also be applied on an optional basis.

Therefore, the reference to the transfer of the tax liability in the invoice of the middle contractor is mandatory in order to determine the recipient as the tax debtor in the context of a triangular transaction.

However, if one of the conditions for the application of the triangular transaction rule – in this case the determination of the recipient as the tax debtor – is not fulfilled, a “correction” of an invoice cannot be assumed if the reference to the transfer of the tax liability is only added later; rather, in this case it is a question of the first issuing of an invoice.

The third question of the applicable legal provisions did not require further consideration by the ECJ.

If the conditions for the existence of a triangular transaction are not met, a chain transaction exists.

The use of a VAT ID other than that of the Member State of destination therefore leads to a cumulative intra-Community acquisition in the VAT Member State for the middle entrepreneur – in addition to the VAT consequences in the Member State of destination. This applies until the middle entrepreneur proves taxation in the Member State of destination.

According to previous Austrian practice, the reorganisation of cumulative intra-Community acquisitions due to unsuccessful triangular transactions is possible under certain conditions. However, the reorganisation only takes effect “ex nunc” and not “ex tunc”, i.e. the triangular transaction rule is not applied retroactively; only the cumulative intra-Community acquisition (without input tax deduction) can be corrected if the correct taxation in the Member State of destination is proven.
However, in addition to the administrative and financial consequences of the VAT obligations in the Member State of destination, the middle trader will be confronted with consequences of late payment. The related late payment surcharges will probably be unavoidable.

Conclusion

With this ruling, the ECJ has regrettably confirmed the practice of non-repairability of a failed triangular transaction with effect “ex nunc”.