© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
M1. Input tax: general principles
GENERAL
Fundamental nature of the right to deduct
"[34] In this regard, it should be recalled that, according to settled case law, the right of taxable persons to deduct from the VAT they owe the VAT due or paid on goods acquired and services received by them upstream constitutes a fundamental principle of the common VAT system. As the Court has repeatedly held, the right to deduct provided for in Articles 167 et seq. of the VAT Directive forms an integral part of the VAT mechanism and cannot, in principle, be limited provided that the substantive and formal requirements or conditions to which this right is subject are met by taxable persons wishing to exercise it (Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 40 and the case law cited)." (Granulines Invest C-270/24)
VAT "due or paid"
- Irrelevant whether supplier has paid over the output tax to tax authority
"[36] Whether or not VAT due on previous or subsequent sales of the goods in question has been paid to the Treasury is irrelevant to the taxable person's right to deduct input VAT. VAT applies to each production or distribution transaction, less the tax directly levied on the cost of the various components of the price (Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 42 and the case law cited)." (Granulines Invest C-270/24)
"[44] The Court has previously held that the question whether the VAT on an earlier or later sale of the goods concerned has or has not been paid to the public purse is irrelevant to the right of the taxable person to deduct input VAT (judgment of 12 January 2006, Optigen and Others, C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 54). As the Direktor claimed, requiring the company concerned to actually pay the VAT due constitutes, for that company, an obstacle to deduction of the input VAT, since it requires that company to commit funds and obliges the tax authorities to return those funds when it re-registers, whereas other traders who hold assets may use them for their economic activities without being required to make such payment." (Wind Inovation 1 C-552/16)
- Irrelevant who paid the consideration for the supply (e.g. third party)
"[66] Moreover, the question as to which of the co-owners in fact settled the invoices relating to the construction of the building is irrelevant for the purposes of replying to the question referred to the Court, since it is clear from Article 11.A(1)(a) of the Sixth Directive that consideration may also be provided by a third party." (HE C-25/03)
- If price established without reference to VAT, price must be regarded as including VAT
"[23] As regards, first of all, the question whether the VAT may be regarded as having been paid on the ground that it should, in circumstances such as those in the main proceedings, be regarded, as Zipvit maintains, as being included in the price paid on the combined basis of the principles arising from the judgment of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12,EU:C:2013:722), and from Articles 90 and 185 of Directive 2006/112, it should be observed that, in paragraph 43 of that judgment, the Court held that Directive 2006/112 must be interpreted as meaning that, when the price of a product has been established by the parties without any reference to VAT and the supplier of that product is the taxable person for the VAT owing on the taxed transaction, the price agreed must be regarded as already including the VAT, in a case where the supplier is not able to recover from the purchaser the VAT claimed by the tax authorities." (Zipvit C-156/20)
- But if the contract was exclusive of VAT and tax authority is not collecting VAT from supplier, price actually paid not regarded as including element of VAT
"[29] It is in fact apparent from the order for reference that the contract between Zipvit and Royal Mail expressly provided that the price of the supply was exclusive of VAT and that, if VAT were nevertheless due, the trader should bear the cost of it.
[30] Furthermore, as is apparent from the documents before the Court, it was legally not impossible for Royal Mail to recover from Zipvit the amount of VAT mistakenly unpaid after it had become aware that the services which it had supplied should have been subject to VAT.
[31] Since, in that context, Royal Mail nevertheless failed to recover the amount of VAT from Zipvit, and in view of the fact that the tax and customs administration itself waived recovery of VAT from that supplier for considerations relating to, inter alia, the protection of legitimate expectations, it must be held that the price invoiced to Zipvit for the supply of postal services is a price exclusive of VAT. However, given that VAT is a tax which must be charged, at each stage, only on the added value and must ultimately be borne by the final consumer (see, to that effect, judgment of 7 August 2018, Viking Motors and Others, C‑475/17, EU:C:2018:636, paragraph 33), a taxable person such as Zipvit cannot claim to deduct an amount of VAT for which it has not been charged and which it has therefore not passed on to the final consumer." (Zipvit C-156/20)
- VAT "due" refers to taxable person being subject to an enforceable tax claim
""[37] It follows from the case-law of the Court that the term ‘due’, within the meaning of Article 168(a) of Directive 2006/112, refers to an enforceable tax claim and therefore requires that the taxable person has an obligation to pay the amount of VAT which that person seeks to deduct as input VAT (see, to that effect, judgment of 29 March 2012, Véleclair, C‑414/10, EU:C:2012:183, paragraph 20)." (Zipvit C-156/20)
- But if price exclusive of VAT + supply treated as exempt, no right to deduct if later turns out to be taxable unless request for payment of VAT sent to recipient
"[38] While it is true that Article 63 of Directive 2006/112 provides that VAT is to become chargeable when the goods or services are supplied, it should be noted that the mere fact that a supply exempt from VAT is ultimately regarded, once completed, as being subject to VAT cannot suffice for a finding that that tax is deductible if no request for payment of that tax has been sent to the recipient of that supply, even though it is not impossible for the supplier to address such a request to that recipient." (Zipvit C-156/20)
Inputs acquired by taxable person
"[28] More specifically, it is apparent from Article 168 of the VAT Directive that, in order to enjoy a right of deduction, two conditions must be met. First, the person concerned must be a ‘taxable person’ within the meaning of the directive. Secondly, the goods or services relied on to confer entitlement to that right must be used by the taxable person for the purposes of his or her own taxed output transactions and, as inputs, those goods or services must be supplied by another taxable person (see, to that effect, judgment of 8 September 2022, Finanzamt R (Deduction of VAT linked to a shareholder contribution), C‑98/21, EU:C:2022:645, paragraph 39 and the case-law cited)." (Feudi C-341/22)
- Only person who received supply may deduct
"[63] In the first place, it should be recalled that, first, under Article 168(a) of Directive 2006/112, a taxable person is entitled to deduct from the VAT which he is liable to pay the VAT due or paid in respect of supplies to him of goods or services carried out by another taxable person. It follows that it is contrary to that provision to permit the members of an IGP to deduct from the VAT which they are liable to pay the VAT due or paid in respect of goods and services supplied to the IGP.
[64] ... It cannot therefore be inferred from that judgment that the members of an IGP are entitled to deduct the VAT on the goods and services acquired by the group, since only the latter may possibly claim a right of deduction of that VAT.
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[66] ...By contrast, in so far as such an IGP provides services which are not exempt, it must be held that, in accordance with that principle, the group in question, and not its members, is entitled in its own right to deduct the VAT charged on its input transactions." (Commission v. Luxembourg C-274/15 - members of cost sharing group cannot deduct tax charged to the group)
- Purchaser of home intending to use one room as office for business is acting as taxable person
"[52] In the light of the foregoing considerations, the answer to the first question must be that where a person purchases a house, or has a house built, in order to live in it with his family he is acting as a taxable person, and is thus entitled to make deductions under Article 17 of the Sixth Directive in so far as he uses one room in that building as an office for the purposes of carrying out an economic activity, albeit an ancillary one, within the meaning of Articles 2 and 4 of the directive and allocates that part of the building to the assets of his business." (HE C-25/03)
For use for taxed transactions
- Use depends on direct and immediate link
"[29] Regarding the second condition, which is the only condition concerned by the present question, it should be borne in mind that, before the taxable person is entitled to deduct input VAT, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is, in principle, necessary. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them is a component of the price of the output transactions giving rise to the right to deduct (judgment of 8 September 2022, Finanzamt R (Deduction of VAT linked to a shareholder contribution), C‑98/21, EU:C:2022:645, paragraph 45 and the case-law cited).
[30] However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the goods and services in question are part of his or her general costs and are, as such, components of the price of the goods or services which he or she supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (see, to that effect, judgment of 12 November 2020, Sonaecom, C‑42/19, EU:C:2020:913, paragraph 42 and the case-law cited)." (Feudi C-341/22)
See further: M2. Direct and immediate link
- Need not intend to use goods in economic activity immediately
"[25] In this regard, it should be borne in mind that an individual who acquires goods for the purposes of an economic activity within the meaning of that provision does so as a taxable person, even if the goods are not used immediately for that economic activity (see Case C‑97/90 Lennartz [1991] ECR I‑3795, paragraph 14)." (SC Gran Via Moineşti C-257/11)
- No threshold level of outputs in order to be able to deduct
"[31] It follows from the foregoing considerations that no provision of the VAT Directive makes the right of deduction conditional on a requirement that the amount of output transactions subject to VAT, carried out by a taxable person during a given period, must reach a certain threshold. On the contrary, it follows from the case-law cited in paragraph 27 of the present judgment, that the right to deduct VAT is ensured, subject to satisfaction of the necessary conditions which it is for the referring court to ascertain, irrespective of the results of the economic activities of the taxable person concerned." (Feudi C-341/22)
Taxed transactions
- Exemptions for specific types of goods/supplies have priority over zero-rating of dispatch
"[32] However, contrary to Eurodental’s submissions, it does not follow that a transaction covered by Article 13 of the Sixth Directive, where it is intra-Community in nature, necessarily, and on that sole ground, falls within the scope of Articles 15 and 28c with the effect that, given the reference made by Article 17(3)(b) of the directive to those provisions, that transaction may give rise to the deduction of input VAT.
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[37] Therefore, notwithstanding the wording of the headings of the relevant provisions of the Sixth Directive, it is apparent from the examination of their content that the transactions exempted under Article 13 of the directive do not give rise to the right to deduct input VAT even where those transactions are of an intra-Community nature." (Eurodental C-240/05)
Only input tax that was actually chargeable may be deducted
"[13] It must be inferred from the changes made to the abovementioned provisions that the right to deduct may be exercised only in respect of taxes actually due, that is to say, the taxes corresponding to a transaction subject to VAT or paid in so far as they were due.
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[19] The answer to the first question should therefore be that the right to deduct provided for in the Sixth Council Directive, 77/388/EEC, of 17 May 1977 does not apply to tax which is due solely because it is mentioned on the invoice." (Genius Holding BV C-342/87)
- Concessionary relief for customer who acted in good faith in deducting improperly charged VAT
"If a VAT registered customer has treated as input tax, an amount charged incorrectly as VAT on an invoice issued by an unauthorised person and deducted it in good faith, and providing a supply has taken place, recovery from the customer of the amount deducted may be remitted and the amount pursued from the supplier." (VAEC9670)
- Transaction must have taken place
"[26] Consequently, the fictitious nature of the delivery of goods or the provision of services is sufficient to deprive the recipient of the invoice relating thereto of the right to obtain the deduction of VAT.
[27] The question of whether the taxable person knew or should have known that he was participating in an operation involved in VAT fraud arises only, if applicable, when all the material and formal conditions of the right to deduct are met." (Klinka-Geo C-501/24)
- No right to recover where derogation charges VAT at single, first stage, even if VAT may economically be included in price
"[38] Under those circumstances, since intermediate suppliers are not required to pay VAT on supplies of manufactured tobacco, they cannot seek reimbursement of that tax under Article 11.C(1) of the Sixth Directive in the event of non-payment by the purchaser of the price for those supplies.
[39] The fact that the amount of the VAT paid at source by the manufacturer or importer by way of tax labels is included, from an economic point of view, in the price of the supplies made to those suppliers is irrelevant in that regard. That circumstance does not in any way call into question the fact that those suppliers do not have any tax debt under the VAT rules." (Vandoorne C-489/09)
Supply by taxable person
- Including that they met the VAT registration threshold
"[39] That is so in particular, even though the Member State has made use of the option in Article 287 of Directive 2006/112 to exempt taxable persons whose annual turnover is no higher than a certain amount, where it can be inferred with certainty from the factual circumstances, such as the volume and price of the goods or services purchased, that the supplier’s annual turnover exceeds that amount, with the result that that supplier cannot benefit from the exemption provided for in that article, and that supplier necessarily has the status of taxable person." (Kenwater ProChemie C-154/20)
- Facts may clearly show unidentified recipient was taxable person
"[34] It is also apparent from the wording of the order for reference and from the wording of the question referred that that question is based on the premiss that the tax authorities had the information necessary to verify, in the light of the facts, that the actual recipients had the status of taxable persons. More specifically, the referring court points out that the transport of rapeseed oil from the Czech Republic to Poland and its unloading at premises of the recipients, who are not identified by the applicant in the main proceedings in its tax returns, were not disputed by the tax authorities. Moreover, the supply at issue in the main proceedings concerns goods which, by their nature, appear to be intended for use in the course of an economic activity.
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[37] Furthermore, in the light of the principle of fiscal neutrality, a taxable person cannot be required, in order to be able to exercise its right to exemption from VAT, to prove, in every case, where the recipient of the goods concerned has not been identified, that that recipient has the status of a taxable person in so far as it clearly follows from the factual circumstances that that recipient necessarily had that status (see, by analogy, judgment of 9 December 2021, Kemwater ProChemie, C‑154/20, EU:C:2021:989, paragraph 40)." (B2 Energy C‑676/22)
"[40] To deny a taxable person the right to deduct VAT on the ground that the true supplier of the goods or services concerned has not been identified and that that taxable person has not proved that that supplier was a taxable person, when it clearly follows from the factual circumstances that that supplier necessarily had that status, would be contrary to the principle of fiscal neutrality and to the case-law cited in paragraphs 26 to 30 above. Consequently, contrary to the referring court’s submissions, in order to be able to exercise that right the taxable person cannot be required, in every case, to prove, where the true supplier of the goods or services concerned has not been identified, that that supplier has the status of taxable person." (Kenwater ProChemie C-154/20)
Acquisition input tax
- No right to recover tax on acquisition deemed to arise in Member State of registration which goods never entered
"[41] However, in circumstances such as those at issue in the main proceedings, it is common ground that the goods which are taxed as intra-Community acquisitions deemed to have been made in the Member State which issued the identification number, in accordance with the first subparagraph of Article 28b(A)(2) of the Sixth Directive, did not actually enter that Member State.
[42] In those circumstances, those transactions cannot be regarded as giving rise to a ‘right to deduct’ within the meaning of Article 17 of the Sixth Directive. Consequently, such intra-Community acquisitions cannot benefit from the general regime of deduction set out in that article.
[43] It must be pointed out that the general regime for the deduction of tax, as set out in Article 17 of the Sixth Directive, is not intended to replace, in a situation such as that at issue in the main proceedings, the specific regime referred to in the second subparagraph of Article 28b(A)(2) of that directive, which is based on the mechanism of reducing the taxable amount in order to make it possible to correct the double taxation." (X C-536/08)
TIMING OF DEDUCTION
- Right arises when tax charged, but exercisable only when invoice held
"[43] It follows from the foregoing that, as the Advocate General observed at point 58 of his Opinion, although, under Article 167 of Directive 2006/112, the right to deduct VAT arises at the same time as the tax becomes chargeable, Article 178 of that directive provides that it can be exercised onlyonce the taxable person holds an invoice (see, to that effect, judgment of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 35 and the case-law cited)."(Volkswagen AG C-533/16)
- Later deduction possible in compliance with national rules
"[32] Nevertheless, pursuant to Articles 180 and 182 of the VAT Directive, a taxable person may be authorised to make a deduction even if he did not exercise his right during the period in which the right arose, subject, however, to compliance with certain conditions and procedures determined by national legislation (judgment of 12 July 2012 in EMS-Bulgaria Transport, C‑284/11, EU:C:2012:458, paragraph 46 and the case-law cited)." (Astone C-332/15)
Consideration not paid
- Loss of entitlement to credit to the extent consideration not paid within 6 months
See M8. Subsequent adjustment of input tax.
DEDUCTION WITHOUT COMPLIANT INVOICE
- Member States may authorise deduction without invoice
"[45] Nevertheless, pursuant to Articles 180 and 182 of that directive, a taxable person may be authorised to make a VAT deduction even if he did not exercise his right during the period in which the right arose, subject, however, to compliance with the conditions and procedures determined by national legislation (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 32 and the case-law cited)." (Volkswagen AG C-533/16)
- Failure to consider whether there was alternative evidence serious error leading to appeal being allowed
"[54]...The finance companies are all well-known companies that Mr Collins used to finance the purchase of other cars. It is inconceivable that the Finance Companies would not have charged VAT on the onward supply of cars. Mr Collins has not produced any evidence of payment by him in relation to the cars but it is, again, inconceivable that the finance companies would not have required payment. There is no dispute that the Finance Agreement Cars were used by Mr Collins in his business. Paragraph 19 of the statement of practice on input tax deduction without a valid VAT invoice says that as long as the taxable person can provide satisfactory answers to the questions in Appendix 2, and any other questions that might be asked, then input tax deduction will be permitted. In our view, the failure to consider whether there was alternative evidence of entitlement to input tax deduction was a serious error by HMRC. As is clear from Best Buy Supplies, the Tribunal has no power to direct HMRC how to exercise their discretion whether or not to accept alternative evidence of entitlement to input tax deduction or to make its own its own decision on the evidence. The Tribunal can only allow or dismiss the appeal. We could dismiss the appeal on this point if, notwithstanding HMRC's failure to consider whether there was any alternative evidence, we are satisfied that, had they done so, the decision would inevitably have been the same. We are not so satisfied. It appears to us that there is a very real possibility that the evidence available would have satisfied HMRC that Mr Collins was entitled to deduct input tax on the Finance Agreement cars. Accordingly, we allow the appeal in relation to the Finance Agreement Cars." (Collins v. HMRC [2012] UKFTT 220 (TC), Judge Sinfield)
TIME LIMIT FOR DEDUCTION
- Time limit cannot run from period prior to T having invoice
"[49] In the present case, it is apparent from the order for reference that, even though the supply of goods at issue was carried out during 2004 to 2010, the Hella Companies did not make an adjustment of the VAT until 2010 when they drew up invoices including the VAT, sent supplementary tax returns to the competent national authority and paid the amount of VAT that was due to the State treasury. It is equally apparent that the risk of tax evasion or non-payment of VAT has been excluded. In these circumstances, it was objectively impossible for Volkswagen to exercise its right to a refund before this adjustment, as, prior to that, it had neither been in possession of the invoices nor aware that the VAT was due.
[50] Indeed, it was only following that adjustment that the substantive and formal conditions giving rise to a right to deduct VAT were met and that Volkswagen could therefore request to be relieved of the VAT burden due or paid, in accordance with Directive 2006/112 and the principle of fiscal neutrality. Accordingly, since Volkswagen did not demonstrate a lack of diligence, and in the absence of an abuse or fraudulent collusion with the Hella Companies, a limitation period which began from the date of supply of the goods and which, for certain periods, expired before this adjustment, cannot validly deny Volkswagen the right to a refund of VAT." (Volkswagen AG C-533/16)
SUBSTANTIVE AND FORMAL CONDITIONS
Deduction to be allowed if substantive conditions met
- The principle
"[29] Thus the Court has held that the fundamental principle of VAT neutrality requires deduction of input VAT to be allowed if the material conditions are satisfied, even if the taxable person has failed to comply with some of the formal conditions (judgment of 11 November 2021, Ferimet, C‑281/20, paragraph 33 and the case-law cited)." (Kenwater ProChemie C-154/20)
"[32] It should be recalled that, under settled case-law of the Court, the identification as provided for under Article 214 of Directive 2006/112 and the obligations stipulated under Article 213 are only formal requirements for the purposes of control, and they cannot undermine, inter alia, the right of deduction or the right of exemption from VAT for an intra-Community supply, where the substantive conditions which give rise to these rights are satisfied (see, to that effect, Nidera Handelscompagnie, paragraph 50; Case C-263/11 Rēdlihs [2012] ECR, paragraph 48; and Mecsek-Gabona, paragraph 60)." (Ablessio C-527/11)
"[43] In addition, the Court has held that the principle of VAT neutrality requires that deduction of input tax be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. Where the tax authority has the information necessary to establish that the taxable person is, as the recipient of the supplies in question, liable to VAT, it cannot impose, in relation to the taxable person’s right to deduct that tax, additional conditions which may have the effect of rendering that right ineffective (see, as regards the reverse charge procedure, Case C-385/09 Nidera Handelscompagnie [2010] ECR I-10385, paragraph 42)." (Polski Trawertyn C-280/10)
"[42] In addition, the Court has held, in the context of the reverse charge procedure, that the principle of VAT neutrality requires deduction of input tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements (Joined Cases C-95/07 and C-96/07 Ecotrade [2008] ECR I-3457, paragraph 63, and Case C-392/09 Uszodaépítö [2010] ECR I‑0000, paragraph 39). Where the tax authority has the information necessary to establish that the taxable person is, as the recipient of the supplies in question, liable to VAT, it cannot impose, in relation to the right of that taxable person to deduct that tax, additional conditions which may have the effect of rendering that right ineffective (Ecotrade, paragraph 64, and Uszodaépítö, paragraph 40)." (Nidera C-385/09)
However:
"[28] Thus, according to settled case-law, although the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by EU legislation, is intended to relieve the operator entirely of the burden of the VAT due or paid in respect of all his or her economic activities and therefore ensuring neutrality of taxation of all economic activities, whatever their purpose or results of those activities, provided that they are themselves, in principle, subject to VAT, Article 178 of Directive 2006/112 provides that that right can be exercised only once the taxable person holds an invoice (see, to that effect, judgment of 21 March 2018, Volkswagen, C‑533/16, EU:C:2018:204, paragraphs 37, 38, 42 and 43 and the case-law cited)." (CB C-521/19)
"[40] The right to deduct VAT is, however, subject to compliance with both substantive and formal requirements or conditions (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 38)." (Volkswagen AG C-533/16)
- OR: failure to comply with PVD formal requirements does not stop right arising but prevents it being exercised
"[79]...As other Advocates General had done, Advocate General Bot [in Senatex] distinguished between the accrual of the right to deduction and the exercise of that right...
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[107] Although we are not bound by the decision of this court on the invoice issue in Zipvit (because the Supreme Court decided the case on a different point), I do not consider that there is anything in that judgment that is out of step with EU case-law as it stood at the time of Zipvit. That case law distinguishes between the accrual of the right to deduct, and the right to exercise it. Up to that time the EU case-law seems to me to fall into a number of different groups. The first group concerns requirements of national law which impose formal requirements that go beyond what the PVD (or before it the Sixth Directive) itself requires. In those cases, the taxable person may exercise the right of deduction even if some of those additional national requirements have not been satisfied. The second group concerns cases in which an invoice which does not, initially, comply with article 226, is corrected by evidence subsequently supplied which brings it into conformity. In those cases the taxable person may also exercise the right to deduct. The third group concerns cases to which the reverse charge procedure applies, or which concern intra-community supplies, where there is no EU requirement to hold an invoice complying with article 226. In addition, the case-law holds that some components of the invoice required by the PVD are more important than others. The VRN, with which we are concerned, was described in Geissel as “essential;” as was the name of the customer in Zipvit.
[108] The real question, I think, is whether EU law has moved on, and what the effect of that is.
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[119] Because judgment in Kemwater was given after 31 December 2020 we are not bound by it, although we may have regard to it. In my judgment it is at odds with the previous jurisprudence of the court; proceeded to a decision without the benefit of an Advocate General’s opinion; does not explain why it applied a case in which no EU formalities were prescribed to one in which they were; and does not deal with the cases which only gave effect to corrected invoices, or where the taxable person ultimately supplied the information that the PVD required the invoice to contain. Although I have had regard to it, I do not consider that we should follow it." (Tower Bridge GP Limited v. HMRC [2022] EWCA Civ 998)
- Applied in particular to reverse charge
"[35] Those considerations apply, in particular, in the context of the application of the reverse charge procedure (see, to that effect, judgments of 1 April 2004, Bockemühl, C‑90/02, EU:C:2004:206, paragraphs 50 and 51; of 8 May 2008, Ecotrade, C‑95/07 and C‑96/07, EU:C:2008:267, paragraphs 62 to 64; and of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraphs 34 and 35)." (Ferimet C-281/20)
- Right to deduct not to be denied where goods delivered and used for taxable transactions
"[40] As regards the main proceedings, it is undisputed that the goods mentioned on the invoice issued by Castor Fit were delivered to Granulines Invest. It also appears from the case file before the Court that the Hungarian tax authorities did not contest either Granulines Invest's taxable status or the fact that the goods thus delivered were used for the purposes of the latter's taxable transactions. Nor did the tax authorities challenge Castor Fit's taxable status.
[41] Since the deliveries of the goods in question in the main proceedings have been made and have been used downstream by Granulines Invest for the purposes of its taxable operations, the benefit of the right to deduct cannot, in principle, be denied to the latter." (Granulines Invest C-270/24)
- Unless right being relied on fraudulently or abusively
"[42] That being said, the fight against fraud, tax evasion and potential abuse is an objective recognised and encouraged by the VAT Directive, and the Court has repeatedly held that individuals may not fraudulently or abusively rely on EU law. Therefore, it is for national authorities and courts to refuse the benefit of the right to deduct VAT if it is established, based on objective evidence, that this right is being invoked fraudulently or abusively (Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 50 and the case law cited)." (Granulines Invest C-270/24)
- Non-compliance with formal condition preventing proof of substantive condition being satisfied
"[31] The position may, however, be different if non-compliance with formal requirements effectively prevents the production of conclusive evidence that the substantive requirements have been satisfied (judgment of 11 November 2021, Ferimet, C‑281/20, EU:C:2021:910, paragraph 36 and the case-law cited).
[32] That may be the case where the identity of the true supplier is not mentioned on the invoice relating to the goods or services on the basis of which the right of deduction is exercised, if that prevents the supplier from being identified and, therefore, the supplier’s status as a taxable person from being established, since, as has been noted in paragraph 25 above, that status is one of the material conditions of the right to deduct VAT (judgment of 11 November 2021, Ferimet, C‑281/20, EU:C:2021:910, paragraph 37)." (Kenwater ProChemie C-154/20)
Non-compliance preventing "conclusive" evidence
"[36] The position may, however, be different if non-compliance with formal requirements effectively prevents the production of conclusive evidence that the substantive requirements have been satisfied (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 42 and the case-law cited).
[37] That may be the case where the identity of the true supplier is not mentioned on the invoice relating to the goods or services on the basis of which the right to deduct is exercised, if that prevents the supplier from being identified and, therefore, the supplier’s status as a taxable person from being established, since, as has been noted in paragraph 27 of the present judgment, that status is one of the material conditions of the right to deduct VAT." (Ferimet C-281/20)
- Refusal depends more on lack of information necessary to establish substantive requirements met
"[35] The position could be different if the effect of breach of failure to satisfy formal requirements is to prevent the production of conclusive evidence that the substantive requirements have been satisfied (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 46 and the case-law cited). Refusal of the right to deduct depends more on the lack of information necessary to establish that the substantive requirements have been satisfied than it does on failure to comply with a formal requirement (see, to that effect, judgment of 11 December 2014, Idexx Laboratories Italia, C‑590/13, EU:C:2014:2429, paragraphs 44 and 45)." (Dobre C-159/17)
- Cannot limit enquiry to information on invoice itself
"[66] In this regard, the tax authorities cannot limit themselves to examining the invoice itself. They must also take into account the additional information provided by the taxable person. This is confirmed by Article 219 of the VAT Directive, which treats as an invoice any document or message that modifies the original invoice and refers to it specifically and unambiguously (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 44)." (Granulines Invest C-270/24)
"[33] In that context, it should be pointed out that, first, the tax authorities cannot restrict themselves to examining the invoice itself. They must also take account of the additional information provided by the taxable person. Secondly, it is for the taxable person seeking deduction of VAT to establish that he or she meets the conditions for eligibility. The tax authorities may thus require the taxable person himself or herself to produce the evidence they consider necessary for determining whether or not the deduction requested should be granted (judgment of 11 November 2021, Ferimet, C‑281/20, EU:C:2021:910, paragraph 38 and the case-law cited)." (Kenwater ProChemie C-154/20)
- Proportionate penalties for non-compliance with formal requirements
"[72] Finally, it should be recalled that Member States are competent to provide for sanctions in the event of non-compliance with the formal conditions relating to the exercise of the right to deduct VAT. Under Article 273 of the VAT Directive, Member States may adopt measures to ensure the correct collection of the tax and to prevent fraud, provided that such measures do not go beyond what is necessary to achieve such objectives or undermine the neutrality of VAT (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 47 and the case-law cited).
[73] In particular, EU law does not prevent Member States from imposing, where appropriate, a fine or a pecuniary penalty proportionate to the seriousness of the infringement in order to penalize failure to comply with formal requirements (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 48 and the case law cited)." (Granulines Invest C-270/24)
- Deliberately failing to fulfil formal requirements is fraud of itself
"[40] In any event, the Court has held that, even if infringements of those formal obligations do not prevent the production of conclusive evidence that the substantive requirements giving rise to the right to deduct input VAT have been satisfied, such circumstances may establish the simplest case of tax evasion, in which the taxable person deliberately fails to fulfil the formal obligations incumbent upon him with the aim of evading payment of the tax (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 55).
[41] In particular, failure to file a VAT return that would allow VAT to be applied and monitored by the tax authorities is liable to prevent the correct collection of the tax and, therefore, to compromise the proper functioning of the common system of VAT. Therefore, EU law does not prevent such infringements from being considered to amount to tax fraud and the right to deduct being refused in such a case (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 56)." (Dobre C-159/17)
Substantive requirements
- (1) Acquisition by taxable person; (2) from taxable person; (3) use for taxed outputs
"[37] The right to deduct VAT is nevertheless subject to compliance with both substantive and formal requirements or conditions. As regards the substantive requirements or conditions, it is clear from Article 168(a) of the VAT Directive that, in order to benefit from this right, it is necessary, firstly, that the person concerned be a "taxable person" within the meaning of that directive, and, secondly, that the goods or services invoked to establish the right to deduct VAT be used downstream by the taxable person for the purposes of their own taxable transactions and that, upstream, these goods be supplied or these services be rendered by another taxable person..." (Granulines Invest C-270/24)
"[41] With regard to the substantive requirements or conditions, it is apparent from the wording of Article 168(a) of Directive 2006/112 that, in order to have a right to deduct, it is necessary, first, that the interested party be a ‘taxable person’ within the meaning of that directive and, second, that the goods or services relied on to confer entitlement to the right to deduct VAT be used by the taxable person for the purposes of his own taxed output transactions, and that, as inputs, those goods or services must be supplied by another taxable person (see, to that effect, judgments of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 28 and the case-law cited, and of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 39)." (Volkswagen AG C-533/16)
- Substantive conditions only met if supply actually carried out
"[39] The substantive conditions to which the right to deduct is subject are met only if the supply of goods or the provision of services to which the invoice relates has actually been carried out (Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 46)." (Granulines Invest C-270/24)
Invoice (formal requirement)
- Holding compliant invoice is formal condition
"[37]...As regards the modalities of exercising the right to deduct VAT, which are akin to formal requirements or conditions, Article 178(a) of the VAT Directive provides that the taxable person must hold an invoice drawn up in accordance with the requirements set out in that directive (see, to that effect, Order of 3 September 2020, Vikingo Fővállalkozó, C-610/19, EU:C:2020:673, paragraph 43 and the case law cited)." (Granulines Invest C-270/24)
"[42] As to the detailed rules governing the exercise of the right to deduct, which may be considered formal requirements or conditions, Article 178(a) of Directive 2006/112 provides that the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 40)." (Volkswagen AG C-533/16)
"[47] By virtue of Article 178(a) of Directive 2006/112, exercise of the right of deduction pursuant to Article 168(a) thereof is subject to the single formal requirement that, in respect of the supply of goods or services, the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240 of the Directive." (Nidera C-385/09)
- Information required to be in invoice may legitimately be established by other means
"[48] The Court has held, second, that, while it is true that an invoice has an important documentary function because it may contain verifiable data, there are circumstances in which the data may be legitimately established by means other than by an invoice and where the requirement to have an invoice in full conformity with the provisions of Directive 2006/112 would be capable of affecting the right of a taxable person to deduct (see, to that effect, Case C-90/02 Bockemühl [2004] ECR I-3303, paragraphs 51 and 52).
[49] However, it should be noted that, as is apparent from the decision for reference, in a situation such as that at issue in the main proceedings, the data necessary to ensure a reliable and efficient collection of VAT is established." (Polski Trawertyn C-280/10)
- Supplier name is formal condition, but status is substantive condition
"[25] It follows that the naming of the supplier, on the invoice relating to the goods or services on the basis of which the right to deduct VAT is exercised, is a formal condition for the exercise of that right. By contrast, the status of the supplier of the goods or services as a taxable person is, as the referring court and the Czech, Spanish and Hungarian Governments observe, among the material conditions for the exercise of that right (see, to that effect, judgment of 11 November 2021, Ferimet, C‑281/20, EU:C:2021:910, paragraph 27)." (Kenwater ProChemie C-154/20)
- Invoice addressed to partner rather than partnership
"[45] As the inability of Polski Trawertyn to exercise its right to deduct the input tax paid arises from the fact that, at the date of issue of the invoice relating to the acquisition, that partnership was not yet registered or identified for the purposes of VAT and the invoice had, therefore, been drawn up in the name of the partners, even though, as the national court found, those who paid the input tax and those who make up Polski Trawertyn are one and the same legal entity, that inability must be considered to result from a purely formal obligation.
[46] As the Advocate General stated at point 72 of his Opinion, compliance with such an obligation cannot be required where, in a situation such as that at issue in the main proceedings, that requirement would have the effect of rendering that right of deduction ineffective, and therefore call into question the neutrality of VAT." (Polski Trawertyn C-280/10)
- Spouse entitled to deduct based on invoice addressed to co-owners where used by one spouse for business
"[81] In a case such as that in the main proceedings, there is no risk of fraud or abuse, since the case concerns a very specific type of community of property, namely co-ownership in fact as between spouses, a community which does not itself have the status of taxable person and within which only one of the spouses carries out an economic activity. Thus, there is no possibility of the invoices, even if they are issued to ‘Mr and Mrs HE’ without stating the proportions of the price and the VAT corresponding to the interest of each of the spouses in the property they co-own, being used by the spouse who is not a taxable person, or by the community, in order to obtain a further deduction of the same amount of VAT.
[82] In those circumstances it would be incompatible with the principle of proportionality to deny the spouse who is a taxable person the right to deduct on the sole ground that the invoices do not contain the particulars prescribed by the applicable national law." (HE C-25/03)
- Members of cost-sharing group not entitled to deduct input VAT charged to group
"[67] In the second place, it is clear from Article 178(a) of Directive 2006/112, read in conjunction with Article 226(5) and Article 168(a) thereof, that, in order to exercise the right of deduction, the taxable person must hold an invoice on which his name appears as customer. Consequently, by permitting the members of an IGP to deduct from the VAT which they themselves are liable to pay, on the basis of an invoice drawn up in the name of that group, the VAT invoiced to the latter, the Luxembourg legislation is contrary to Article 178(a) of Directive 2006/112." (Commission v. Luxembourg C-274/15 - members of cost sharing group cannot deduct tax charged to the group)
- Rectification of invoice not a condition where information verifying substantive conditions met provided
"[70] In this regard, it should be considered, in response to the second question, under (a), that, where an invoice does not meet the requirements of Article 226(7) of the VAT Directive, its rectification cannot constitute a condition for exercising the right to deduct VAT, where the taxable person has provided the information enabling verification that the substantive conditions relating to the exercise of that right are met (see, to that effect, Order of 13 December 2018, Mennica Wrocławska, C-491/18, EU:C:2018:1042, paragraph 45).
[71] It is therefore for the referring court, if it finds that the invoice relating to the supply of the goods at issue in the main proceedings does not meet the requirements of Article 226(7) of the VAT Directive, to verify whether Granulines Invest has provided the information necessary to determine the correct date of delivery. If so, and the substantive conditions for exercising the right to deduct VAT are met, it is that latter date that must be taken into account to determine the date on which the right to deduct VAT arises, in accordance, in particular, with Article 167 of that Directive." (Granulines Invest C-270/24)
- Reverse charge: purchaser does not need to hold ordinary invoice
"[28] As regards specifically the rules governing the exercise of the right to deduct VAT in the reverse charge procedure under Article 199(1) of Directive 2006/112, it must be added that a taxable person who is liable as the purchaser of an item of property for the VAT relating thereto is not required to hold an invoice drawn up in accordance with the formal requirements of that directive in order to be able to exercise his or her right to deduct, and only has to fulfil the formalities laid down by the Member State concerned in the exercise of the option conferred by Article 178(f) of that directive (judgment of 26 April 2017, Farkas, C‑564/15, EU:C:2017:302, paragraph 44 and the case-law cited)." (Ferimet C-281/20)
Registration (formal requirement)
- Registration with tax authority/notice of commencing economic activity - formal requirement for purposes of verification
"[48] Indeed, there is also an obligation on taxable persons to state when their activity commences, changes or ceases, in accordance with the measures adopted to that end by the Member States, pursuant to Article 213 of Directive 2006/112. However, the Court has already held that that in no way authorises Member States, in the event of such a declaration not being submitted, to defer the exercise of the right to deduct until the time at which taxable transactions actually begin to be carried out on a regular basis, or to deprive the taxable person of that right (see, by analogy, Joined Cases C‑110/98 to C‑147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 51).
...
[50] In consequence, the identification provided for in Article 214 of Directive 2006/112, in the same way as the obligations laid down in Article 213 of that directive, cited in paragraph 48 of the present judgment, is not a measure giving rise to the right of deduction – a right which arises at the time when the deductible tax becomes payable – but constitutes a formal requirement for the purposes of verification." (Nidera C-385/09)
- Deduction cannot be denied on basis of failure to register prior to use of inputs
"[33] It follows from this case-law that the registration of a taxable person in the register of taxable persons subject to VAT is a formal requirement, such that a taxable person cannot be prevented from exercising his right of deduction on the ground that he had not been identified as a taxable person for VAT purposes before using the goods purchased in the context of his taxed activity (see, to that effect, Nidera Handelscompagnie, paragraph 51, and Dankowski, paragraphs 33, 34 and 36). Therefore, the refusal to assign a VAT identification number cannot, in principle, have any effect on the taxable person’s right to deduct input VAT if the material conditions giving rise to that right have been fulfilled." (Ablessio C-527/11)
"[51] It follows from the foregoing that a taxable person for VAT purposes cannot be prevented from exercising his right of deduction on the ground that he had not been identified as a taxable person for those purposes before using the goods purchased in the context of his taxed activity." (Nidera C-385/09)
- But time limit can be imposed on requirement to register and claim deduction
"[52]...In addition, as the Commission rightly observed, if exercise of the right of deduction of VAT were not limited as to time, legal certainty would not be fully possible. The obligation on taxable persons to identify themselves for VAT purposes would be rendered meaningless if the Member States were not entitled to impose a reasonable time-limit in that regard.
[53] In the main proceedings, nevertheless, it appears that Nidera was not obliged to identify itself as a taxable person for VAT purposes in Lithuania, in accordance with Article 71(3) of the PVMĮ, even though under Article 63(1) of that Law taxable persons cannot deduct VAT unless they have taken that step. In as much as it was thus necessary for Nidera to identify itself as a taxable person for VAT purposes in order to exercise its right of deduction, it must be held that it did so less than six months after having completed the transactions which gave rise to that right and, accordingly, within a reasonable period of time." (Nidera C-385/09)
- Cannot refuse right to deduct on basis that VAT registration withdraw unless due to fraud
"[27] By its question, the referring court asks, in essence, whether Directive 2006/112 must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which allows tax authorities to refuse a taxable person the right to deduct VAT when his identification for VAT purposes has been revoked on the ground that he failed to submit VAT returns within the statutory time limit for a given period.
...
[34] Furthermore, the Court has held that penalising the failure on the part of the taxable person to comply with the obligations relating to accounts and tax returns by denial of the right to deduct clearly goes further than is necessary to attain the objective of ensuring the correct application of those obligations, since EU law does not prevent Member States from imposing, where necessary, a fine or a financial penalty proportionate to the seriousness of the offence (judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 63).
...
[42] Having regard to those considerations, Articles 167 to 169 and 179, Articles 213(1) and 214(1), and Article 273 of Directive 2006/112 must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which allows tax authorities to refuse a taxable person the right to deduct VAT when it is established that, on account of the alleged infringements committed by that person, the tax authorities could not have access to the information necessary to establish that the substantive requirements giving rise to the right to deduct input VAT paid by that taxable person have been satisfied or that that person acted fraudulently in order to enjoy that right, a matter which it is for the referring court to ascertain." (Dobre C-159/17)