On December 8, 2022, the EU Court of Justice (ECJ) ruled on the possibility of correcting invoices on which the high VAT rate was initially calculated in a situation where there are supplies of services to consumers. This ruling determined that this is possible under the circumstances.
Case
This case involves an Austrian entrepreneur operating an indoor playground, where access is provided exclusively to private individuals. A high VAT rate was initially charged for these services. After research by the entrepreneur, it turned out that the low VAT rate applied to these services. Following this, the entrepreneur requested the Austrian tax authorities for a refund of the overpaid VAT by correcting its already filed returns.
The Austrian tax authorities refused this refund on two grounds:
- The entrepreneur continues to owe the high VAT rate because the high VAT rate was charged on the invoice and the invoices were not corrected;
- The customers have already paid the higher VAT. Correcting the VAT to the low rate would unjustifiably enrich the entrepreneur.
ECJ ruling
The Court of Justice disagrees with the Austrian tax authorities. The Court indicates that Article 203 of the VAT Directive (''VAT is payable by any person who mentions this tax on an invoice''), which is also mentioned in Article 37 of the Dutch Wet op de Omzetbelasting 1968, does not apply if the VAT that was incorrectly calculated does not result in the loss of VAT. In this case, because the recipients of the service provided by the Austrian entrepreneur are private individuals, who are not entitled to deduct the VAT charged, there is no loss of VAT. In addition, the Court ruled that it is also not necessary to correct the invoices issued.
What does this mean for you?
If in the past five years, you have issued invoices to consumers or parties who cannot deduct VAT where you have not applied the correct VAT rate, you may still be able to successfully apply for a refund of this VAT. Even if you have doubts about whether the low VAT rate applied to your previous sales, it pays to investigate this further.
Also, based on the Court's ruling, there is no need to correct invoices issued, which avoids a lot of red tape.
In addition, we believe that this ruling offers opportunities for you if it is difficult to distinguish between different VAT rates on the invoices. After the correct VAT treatment is determined, it can be applied to previous transactions, meaning that the right amount corresponding to the applicable VAT rate can be paid to the authorities or excess VAT can be reclaimed.
Contact us
Need help determining the impact of this ruling on your business, or have other questions about it? Contact us. We are happy to help.
