ECJ: Adjustment of tax liability without invoice correction

The ECJ recently had to decide whether a correction of a VAT return is also permissible if no invoices but cash register receipts have been issued and therefore an invoice correction is not possible at all.

In a question referred to the ECJ, it had to be clarified whether a correction of the VAT return is also permissible if no invoices have been issued, but in particular whether an invoice correction can be assumed for those taxable persons who are not obliged to issue invoices at all due to the nature and scope of the transactions.

1. The Case

An entrepreneur (B) provides services in Poland in connection with leisure activities and the improvement of physical fitness. These other services were taxed at the (Polish) standard tax rate of 23 % in the years 2012-2014. In 2014, B argued – in line with the relevant Polish tax law literature – that these services should be subject to the special (reduced) VAT rate of 8 %, whereupon he applied for a correction of the VAT returns for the years 2012-2014 and a refund of the overstated VAT.

The tax authorities rejected such a correction, stating that B had not issued any invoices for the services, but that the invoices needed to be corrected (first) in order to correct the declaration.

The court appealed to by B upheld the appeal. Accordingly, the taxable person is entitled to adjust the amount of tax due on the sales. The absence of the original receipt handed over to the buyer did not constitute an obstacle, as the cash register allowed the data stored in it to be read out several times. The Supreme Administrative Court, which was then called upon by the tax office, then referred the question to the ECJ,

• whether the principles of fiscal neutrality, proportionality and equal treatment should be interpreted as meaning that a correction of a VAT return is also possible if no invoices but cash register receipts have been issued.

2. Judgement of the ECJ

In its judgement (ECJ 21.03.2024, C-606/22, B. sp. j), the ECJ states at the outset that the tax administration of a Member State would disproportionately impair the principle of neutrality if it charged the taxable person VAT to which the taxable person is entitled to a refund.

However, before it is clarified whether a correction of the VAT return is also possible without an invoice correction, the question first arises as to whether the taxable person is entitled to a VAT refund. A refund is not possible if it would lead to unjust enrichment of the person entitled to it. In this regard, the ECJ states that VAT should only be charged to the end consumer, although this does not necessarily mean that a refund would in any case constitute unjust enrichment. For example, the taxable person could suffer economic damage as a result of the application of the incorrect – specifically too high – tax rate due to a decline in sales, which is already sufficient for the admissibility of a refund. The ECJ considers whether such damage can be assumed in the present case to be a question of fact which falls within the jurisdiction of the national court.

If such damage exists, it would also have to be examined whether the repayment claim can be made dependent on an invoice correction. If the taxable person is not obliged to issue an invoice due to the nature and amount of the transactions, the practice of making a correction of the VAT return dependent on an invoice correction is contrary to the principle of effectiveness. In the present case, the taxable person is also at a disadvantage compared to other direct competitors who have correctly applied the reduced VAT rate. Therefore, the practice of the tax administration also violates the principle of fiscal neutrality.

Conclusion

With this judgement, the ECJ has ruled that the request for an invoice correction for the correction of the VAT return violates the principles of effectiveness and neutrality if the taxable person is not obliged to issue an invoice. This statement is particularly relevant and consistent in light of the most recent ECJ judgement 08.12.2022, C-378/21, P-GmbH (para. 24), according to which no invoice correction is required for B2C transactions if an invoice has been issued in order to obtain a VAT refund. This is because B2C transactions do not jeopardise tax revenue due to the lack of input VAT deduction by the recipient.

In this case, the ECJ stated that the absence of invoices was lawful; this implies that the services provided were based on B2C transactions.¹ However, this also means that there is no risk to tax revenue.

If no correction is necessary even if an invoice has been issued (ECJ 08.12.2022, C-378/21, P-GmbH), it is therefore only logical not to require an invoice correction for a VAT refund even if an invoice is (lawfully) missing.