© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
A14. Effectiveness
Evidence that is impossible/excessively difficult to obtain
- Cannot make exercise of right dependent upon evidence that it is excessively difficult to obtain/does not exist
"[63] However, in so far as possession of an invoice is, under national law, an essential condition for the reduction of the taxable amount, VAT neutrality is affected when it is impossible or excessively difficult for the person entitled to the refund to obtain such an invoice (see, to that effect, judgment of 26 January 2012, Kraft Foods Polska, C 588/10, EU:C:2012:40, paragraph 38).
[64] It is apparent from the order for reference that Boehringer Ingelheim does not have invoices in respect of the payments it made to the State health insurance agency, since the latter issued only requests for payment.
[65] In such a situation, the principles of VAT neutrality and proportionality require the Member State concerned to permit the taxable person to establish by other means before the national tax authorities that the transaction giving entitlement to a reduction in the taxable amount was in fact carried out (see, to that effect, judgment of 26 January 2012, Kraft Foods Polska, C 588/10, EU:C:2012:40, paragraph 40). This is especially so where, as in the present case, the transaction in question took place with regard to a State entity." (Boehringer Ingelheim C-717/19)
- Evidence which a third party is under no binding obligation to provide making exercise of right excessively difficult
"[37] Moreover, given that possession of the acknowledgment of receipt in question enables the supplier of goods or services to calculate the VAT payable on the basis of the amounts set out in the corrected invoice or to recover all the excess VAT paid to the tax authorities, that requirement does not, in principle, undermine VAT neutrality.
[38] However, possession of acknowledgment of receipt being, under national law, an essential condition for calculating the VAT payable on the basis of the amounts set out in the correcting invoice or for recovering the excess VAT paid, it must be held that, in the light of the case-law cited at paragraphs 29 to 31 above, VAT neutrality is affected when it is impossible or excessively difficult for the supplier of goods or services to obtain such acknowledgment of receipt within a reasonable period of time.
[39] KFP stated, without being contradicted on this point, that, under Polish law, the purchaser of goods or services is not under any legally binding obligation to acknowledge receipt of a correcting invoice, which is a matter for verification by the referring court.
[40] If it is impossible or excessively difficult for the supplier of goods or services to recover, within a reasonable period, the excess VAT paid to the tax authorities on the basis of the initial invoice because of the condition at issue in the main proceedings, the principles of VAT neutrality and proportionality require the Member State concerned to permit the taxable person to establish by other means before the national tax authorities, first, that he has taken all the steps necessary in the circumstances of the case to satisfy himself that the purchaser of the goods or services is in possession of the correcting invoice and that he is aware of it and, second, that the transaction in question was in fact carried out in accordance with the conditions set out in the correcting invoice.
[41] Copies of the correcting invoice and the reminder addressed to the purchaser of the goods or services to send acknowledgment of receipt and, as KFP submitted at the hearing without being contradicted on that point, proof of payment or the production of entries from the accounts which make it possible to identify the amount actually paid to the taxable person in connection with the transaction in question by the purchaser of the goods or services may serve that purpose." (Kraft Foods Polska C-588/10)
- Tax authority seeking to prove abuse not required to furnish evidence it would be impossible to provide
"[118] Such an authority has the task not of identifying the beneficial owners of those dividends but of establishing that the supposed beneficial owner is merely a conduit company through which an abuse of rights has been committed. Indeed, identification of that kind may prove impossible, in particular because the potential beneficial owners are unknown. Given the complexity of certain financial arrangements and the possibility that the intermediary companies involved in the arrangements are established outside the European Union, the national tax authority does not necessarily have information enabling it to identify those owners. That authority cannot be required to furnish evidence that would be impossible for it to provide." (T Danmark C-116/16)
Time limits and effectiveness
- Failure to correctly transpose directive: Member State entitled to impose time limits on claims re consequences
"[26] On the other hand, it is open to a Member State to limit the time within which proceedings arising from its failure to implement a directive can be brought. In Rewe-Zentralfinanz eG v Landwirtschaftskammer für das Saarland (Case 33/76) [1976] ECR 1989, where charges were said to have been levied in breach of the EEC Treaty and a regulation, the ECJ concluded (in paragraph 6 of its judgment):
"in the present state of Community law there is nothing to prevent a citizen who contests before a national court a decision of a national authority on the ground that it is incompatible with Community law from being confronted with the defence that limitation periods laid down by national law have expired, it being understood that the procedural conditions governing the action may not be less favourable than those relating to similar actions of a domestic nature".
That approach was applied in relation to a directive in Fantask A/S v Industriministeriet (Case C-188/95) [1998] All ER (EC) 1, which involved a claim to recover charges levied in breach of a directive. The ECJ's answer to one of the questions that had been referred to it was (in paragraph 52 of its judgment):
"Community law, as it now stands, does not prevent a member state which has not properly transposed the directive from resisting actions for the repayment of charges levied in breach thereof by relying on a limitation period under national law which runs from the date on which the charges in question became payable, provided that such a period is not less favourable for actions based on Community law than for actions based on national law and does not render virtually impossible or excessively difficult the exercise of rights conferred by Community law"." (Iveco Limited v. HMRC [2017] EWCA Civ 1982, Newey, Sharp, Henderson LJJ)
- 2 year time limit for input recovery in principle permitted
"[38] With respect to the principle of effectiveness, the Court has also held that a two-year time limit, such as that provided for in Article 19(1) of Decree No 633, at issue in the main proceedings, cannot, in itself, render the exercise of the right to deduct virtually impossible or excessively difficult, since Article 167 and the first paragraph of Article 179 of the VAT Directive allow Member States to require that the taxable person exercise his right to deduct during the same period as that in which it arose (see, to that effect, judgment of 8 May 2008 in Ecotrade, C‑95/07 and C‑96/07, EU:C:2008:267, paragraph 48)." (Astone C-332/15)
- No rule requiring limitation to be deferred until existence of right to recover has been judicially established
"[27] There is, moreover, "no rule of EU law requiring the running of a limitation period to be deferred until the existence of a right to recover [a] payment has been judicially established" (Leeds City Council v HMRC [2015] EWCA Civ 1293, [2016] STC 2256, at paragraph 43). "Ignorance of one's legal rights is not a ground for disapplying a limitation period" (Leeds, at paragraph 43, relying on British Telecommunications plc v HMRC [2014] EWCA Civ 433, [2014] STC 1926, at paragraphs 106 and 123)." (Iveco Limited v. HMRC [2017] EWCA Civ 1982, Newey, Sharp, Henderson LJJ)
- Customer must have direct right to recover improperly charged VAT where supplier out of time to make claim due to length of time it took to decide whether VAT chargeable
"[26] The referring court notes, in particular, that, as the judgment of 26 November 2018 confirmed that the tax treatment reserved by Greenfiber and Greentech for the transaction at issue was correct, those companies had no valid reason to correct the invoice recording that transaction before the judgment of 23 November 2021 was delivered. Furthermore, Greenfiber could not correct that invoice until after the delivery of the latter judgment. However, on the date of that judgment, the right to correct that invoice was already time-barred, because the limitation period had expired in May 2021.
...
[38] If, as in the present case, reimbursement of the VAT has become impossible or excessively difficult, the principles of the neutrality of VAT and effectiveness require the Member States to provide for the instruments necessary to enable the recipient to recover the VAT which has been unduly invoiced and paid, in particular by addressing its application for reimbursement to the tax authorities directly (judgment of 13 October 2022, HUMDA, C‑397/21, EU:C:2022:790, paragraph 22 and the case-law cited). Thus, where the seller can no longer correct the invoice relating to the transaction concerned and it is therefore impossible for the buyer to obtain reimbursement from the seller of the VAT unduly invoiced, the buyer must, according to the case-law recalled above, be able to apply directly to the tax authorities for reimbursement.
[39] It must be stated, however, that, as can be seen from paragraph 45 of the judgment of 11 April 2019, PORR Építési Kft. (C‑691/17, EU:C:2019:327), such an application for reimbursement must be distinguished from a claim for deduction of VAT, such as that at issue in the main proceedings.
...
[42] In the light of the foregoing considerations, the answer to the question referred is that Articles 168 and 203 of the VAT Directive, as well as the principles of the neutrality of VAT and effectiveness, must be interpreted as not precluding a piece of national legislation or a national administrative practice which does not allow a taxable person to obtain the deduction of the input VAT on a transaction which, following a tax audit, has been reclassified by the tax authorities as a transaction not subject to VAT, even though it appears impossible or excessively difficult for that taxable person to obtain, from the seller, reimbursement of the VAT thus unduly paid. However, those principles require that, in such a situation, that taxable person be able to apply directly to the tax authorities for reimbursement."(Greentech C-640/23 - as noted, lower court held VAT was due)
- Principle of effectiveness where tax authority changes view of supply taxability
"[58] Finally, the Portuguese Government observes that, if CTT had the right to alter the deduction method for VAT, the adjustment requested was in any event out of time. According to the Portuguese Government, while Article 98(2) of the VAT Code lays down, for the right to alter or adjust deductions, a general time limit of four years from the date on which the right to deduction or to the payment of the overpaid tax arose, that time limit does not apply where the final proportion has been fixed pursuant to Article 175(3) of the VAT Directive.
[59] In this respect, it should be borne in mind that, pursuant to the principle of legal certainty, a limitation period the expiry of which has the effect of penalising a taxable person who has not been sufficiently diligent and has failed to claim deduction of input tax, by making him forfeit his right to deduct, cannot be regarded as incompatible with the regime established by the VAT Directive, in so far as, first, that period applies in the same way to analogous rights in tax matters founded on domestic law and to those founded on EU law (principle of equivalence) and, second, that it does not in practice render impossible or excessively difficult the exercise of the right to deduct (principle of effectiveness) (judgment of 26 April 2018, Zabrus Siret, C‑81/17, EU:C:2018:283, paragraph 38).
[60]In the present case, although it is not apparent from the information provided by the referring court that the national legislation at issue in the main proceedings lays down in respect of VAT a different scheme from that laid down in respect of other tax matters under national law, the principle of effectiveness, on the other hand, precludes such legislation if it is liable, in circumstances such as those at issue in the main proceedings, to deny a taxable person the opportunity to correct his VAT returns once the final proportion has been fixed, even though the four-year limitation period laid down by that legislation has not yet expired. In such circumstances, the exercise of the right to adjust VAT, deductions, referred to in paragraph 51 above, will be impossible in practice or, at the very least, excessively difficult (see, by analogy, judgment of 26 April 2018, Zabrus Siret, C‑81/17, EU:C:2018:283, paragraphs 40 and 41).
[61] In that regard, it should also be borne in mind that the national courts are bound to interpret, where possible, national law in a manner consistent with EU law, and that, although the obligation to interpret national law in a manner consistent with EU law cannot serve as the basis for an interpretation of national law contra legem, national courts must alter their case-law or decision-making practice, where necessary, if it is based on an interpretation of national law that is incompatible with the objectives of a directive (see, to that effect, judgment of 8 May 2019, Związek Gmin Zagłębia Miedziowego, C‑566/17, EU:C:2019:390, paragraphs 48 and 49)." (CTT - Correios de Portugal C-661/18)
Legality and effectiveness
- Need for penalties to be effective cannot override principle of legality (unlawfully obtained evidence)
"[35] In that regard, it follows, in particular, from the requirements derived from the principle of legality and the rule of law that the exercise of the power to impose penalties cannot take place, as a matter of principle, outside the legal limits within which an administrative authority is authorised, in accordance with the law of the Member State by which it is governed, to act (see, by analogy, judgment of 1 October 2015, Weltimmo, C‑230/14, EU:C:2015:639, paragraph 56).
...
[38] It must therefore be observed that the provision at issue in the main proceedings reflects the requirements set out in paragraphs 35 to 37 above, in that it requires the national court to exclude, from a prosecution, evidence such as the interception of telecommunications requiring prior judicial authorisation, where that authorisation was given by a court that lacked jurisdiction.
[39] It follows that EU law cannot require a national court to disapply such a procedural rule, even if the use of that evidence gathered unlawfully could increase the effectiveness of criminal prosecutions enabling national authorities, in some cases, to penalise non-compliance with EU law (see, by analogy, with regard to domestic rules of procedure conferring the force of res judicata on a decision of a court, judgment of 24 October 2018, XC and Others, C‑234/17, EU:C:2018:853, paragraph 53 and the case-law cited)." (Dzivev C-310/16)