On 18 March 2021, in A. v Dyrektor Krajowej Informacji Skarbowej (Case C-895/19), the Court of Justice of the European Union held that Art. 167 and 178 of the VAT Directive (2006/112/EC) should be interpreted as precluding national legislation which makes the exercise of the right to deduct input VAT in the same reporting period as that in which output VAT was due on intra-Community acquisitions of goods subject to settlement the output VAT in the appropriate reporting period within a mandatory period (three months) following the end of the month in which the tax liability arose in relation to the goods and services acquired.
What next?
In our opinion, although the judgment concerns the provisions on intra-Community acquisition of goods (ICA), it should apply to all transactions subject to reverse charge mechanism, because in this respect these provisions are formulated in the same way, and the court’s reasoning is universal and undermines such a structure in principle.
The judgment therefore shows that VAT arrears due to ICA since 2017 should never have arisen, and thus interest paid was not owed to the tax authorities. The judgment opens the way to recovery of undue interest on VAT for intra-Community acquisition of goods, and it is also possible to reopen tax and court proceedings if such settlements were the subject of a dispute with the tax authorities or were resolved by the courts.
What should be done?
In a situation where there was no dispute with the tax authorities, an application should be submitted for recovery of a tax overpayment along with a correction of the VAT return for the periods in which the output tax was shown and for the periods in which the taxpayer showed input VAT. If these adjustments affect the accounts between these periods, those returns may have to be adjusted as well. As a rule, an application to recover an overpayment may be submitted until the tax liability expires. Apart from reimbursement of undue interest and overpayment of tax, taxpayers are also entitled to interest at a rate of 8% per annum. The interest accrues from the date of the overpayment through:
• The date of return of the overpayment, provided that the taxpayer submits an application for reimbursement of the overpayment before the deadline or within 30 days after publication of the operative part of the Court of Justice ruling in the Official Journal of the European Union, or
• 30 days from the date of publication of the operative part of the judgment, if the application for reimbursement of the overpayment was submitted more than 30 days after publication of the operative part of the judgment.
If settlements for ICA were the subject of a dispute and a final decision was issued in the case (final administrative decision or administrative court judgment), then, to recover undue interest, the proceedings should be reopened by submitting an application:
• In the case of reopening of administrative proceedings, within one month from publication of the operative part of the Court of Justice ruling in the Official Journal of the European Union
• In the case of reopening of court proceedings, within three months from publication of the operative part of the judgment.
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