8 November 2013
VAT on non-compliant purchase invoices
Luxembourg Tax Alert
(pdf, 75kb) he European Court of Justice (CJEU) has ruled that national tax authorities are entitled to refuse input tax deductions where the purchase invoice lacks required information, even when the missing information is obtained after the VAT audit.
A Belgian company, Petroma Transports SA (C-271/12), raised inter-company invoices for services supplied to other group companies. The recipient companies were audited and the invoices inspected. The invoices were found to have omitted information required under Belgian law, which led the tax authority to refuse the input tax deductions. The companies then obtained further information to supplement the invoices and sought to have the right to input tax recovery reinstated.
The CJEU judgment confirms that at the r elevant time (circa 1997), the righ t to input tax recovery was conditional upon the taxpayer being in possession of a valid invoice which was compliant with the Sixth VAT Directive and any additional national requirements imposed to ensure the correct levying of VAT and to permit supervision by the tax authority.
Because the invoices were incomplete, the disallowance of input tax was lawful. Moreover, although taxpayers may take steps to obtain corrected invoices and thereby meet the invoicing condition for input tax recovery, the taxpayer in this case did not do so until after the tax authority had adopted its decision to refuse the right to deduct the VAT. The taxpayer’s attempts to rectify the position were too late and to no effect since the tax authority was not able to ensure the correct collection of the VAT at the appropriate time.
This case underlines that incomplete or otherwise non-compliant invoices may create financial risks for customers who have paid the VAT to their suppliers and are seeking input tax recovery or credit from the tax authorities. It also shows that any rectification of non-compliant invoices is timelimited, and that any corrective action post-audit may have no effect.
The Luxembourg position under current legislation is in line with this case-law but goes beyond the case Pannon Gep Centrum C-368/09), since the later case confines the risk of refusal of input tax recovery because of a non-compliant invoice to situations where the express obligations of the VAT Directive are not met.
According to the Luxembourg VAT law dated March 29, 2013 and the Luxembourg Circular n°762 dated April 4, 2013, failure to meet national rules can lead to the disallowance of input tax as far as domestic transactions are concerned, while failure to meet the VAT Directive rules can also lead to the same when cross-border transactions are concerned.
This means that where one or more of the detailed requirements identified in Article 226 of the VAT Directive or in Article 63 of the Luxembourg VAT law are not met, this judgment presents an additional opportunity for the Luxembourg authorities to assess taxpayers.
This case involved inter-company invoices for services. In general, these often contain less detailed descriptions than invoices for goods, and may not always be subject to the same systems, processes and controls as external invoices.
What should businesses do?
Businesses receiving VAT invoices should check that they have adequate controls in place to ensure that purchase invoices – including inter-company invoices – are fully compliant, and that any non-compliant invoices are challenged promptly. This will be particularly important for businesses that operate Shared Service Centres or that rely on a Business Process Outsource (BPO) service provider to handle and post Accounts Payable invoices.
Businesses that issue VAT invoices should ensure that they are complete and fully compliant with EU Directives, in order to minimise the risk of customers seeking to recover from them VAT that has later proved to be irrecoverable. Suppliers should also ensure that they have procedures in place promptly to correct any non-compliant invoices that may be challenged by customers.
EY has a global indirect tax practice which is experienced in providing support in relation to technical VAT issues. If you feel that this judgment could potentially have implications for your business, and you would like to discuss the position in more detail, please speak with your usual EY indirect tax contact.
Download the tax alert (pdf, 75kb)