© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
T4. VAT shown on invoice
Duty to pay VAT shown​
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- VAT shown on invoice payable even in absence of actual transaction
"[23] In that regard, Article 203 of the VAT Directive provides that VAT is to be payable by any person who enters the VAT on an invoice. In accordance with the Court’s case-law, the VAT indicated on an invoice is payable by the issuer of the invoice even in the absence of an actual taxable transaction (judgment of 8 December 2022, Finanzamt Österreich (VAT invoiced incorrectly to final consumers), C‑378/21, EU:C:2022:968, paragraph 19 and the case-law cited)." (P C-794/23)
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"[23] According to the case-law of the Court of Justice, those persons are liable to pay the VAT entered on an invoice independently of any obligation to pay it on account there being a transaction subject to VAT (see Case C-566/07 Stadeco [2009] ECR I-5295, paragraph 26 and the case-law cited, and Case C-642/11 Stroy trans [2013] ECR, paragraph 29)." (Rusedespred C-138/12)
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- Applies where VAT invoiced incorrectly and there is a risk of loss of tax
"[24] It is also clear from the Court’s case-law that Article 203 of the VAT Directive seeks to eliminate the risk of loss of tax revenue which the right of deduction provided for in that directive might entail. Article 203 therefore applies where VAT has been invoiced incorrectly and there is a risk of loss of tax revenue on account of the fact that the recipient of the invoice in question has a right to deduct such VAT (judgment of 8 December 2022, Finanzamt Österreich (VAT invoiced incorrectly to final consumers), C‑378/21, EU:C:2022:968, paragraphs 20 and 21 and the case-law cited)." (P C-794/23)
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- Only applies to the extent that the VAT was not correctly invoiced
"[25] The Court has also held that in a situation in which part of the VAT invoiced was incorrectly invoiced, Article 203 of that directive applies only to the amount of VAT exceeding that which was duly invoiced. In the latter case, there is a risk of loss of tax revenue, since a taxable person who is the recipient of such an invoice might be led to exercise his or her right to deduct VAT without the competent tax authorities being in a position to determine whether the conditions for exercising that right are satisfied (judgment of 8 December 2022, Finanzamt Österreich (VAT invoiced incorrectly to final consumers), C‑378/21, EU:C:2022:968, paragraph 23)." (P C-794/23)
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- HMRC using national law to collect VAT properly charged
"You may encounter circumstances where it would be appropriate to raise a demand on a taxable person under Schedule 11 paragraph 5.
For example, where a supply was treated as exempt more than four years earlier, a taxable supplier may, on learning that the supply was in law liable to VAT at the standard rate, issue an invoice to enable the customer to take input tax deduction years after the supply took place.
In such circumstances, the neutrality of the tax would be disturbed to the Exchequer’s detriment if the supplier refused to account for all or most of the tax, it being due more than 4 years earlier, whilst the customer is entitled to take a full deduction.
To ensure equity of treatment, officers should contact Tax Administration, Litigation and Advice (TALA), see VAEC0150, in any case where, exceptionally, a demand under Schedule 11 paragraph 5 is to be issued to a taxable person." (VAEC9620)
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Which Member State may collect?​
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- Place of supply of any underlying services not relevant
"[27] Consequently, in contrast to the case of tax debt which may arise on the basis of a transaction subject to VAT, the place of the supply of services giving rise to an invoice is not relevant with regard to the question whether a tax debt arises under Article 21(1)(c) of the Sixth Directive, which is due solely because the VAT is mentioned on that invoice." (Stadeco C-566/07)
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- The Member State where the risk of loss due to deduction exists
"[31] Since the risk of the loss of tax revenue which the exercise of the right to deduct by the addressee of the invoice entails is carried by the Member State to which the VAT mentioned on the invoice relates, the VAT is due, pursuant to Article 21(1)(c) of the Sixth Directive, in that Member State.
[32] In that connection, it is for the national court to ascertain, taking into account all the relevant circumstances of the case, to which Member State the VAT mentioned on the invoice in question is due. In particular, the rate mentioned, the currency in which the amount to be paid is expressed, the language in which the invoice was drawn up, the content and context of the invoice in question, the place of establishment of the issuer of that invoice and the beneficiary of the services performed, as well as their behaviour, can be relevant in that regard." (Stadeco C-566/07)
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Refund/no liability where no risk of loss of tax​
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- In principle there is a risk of loss as long as addressee of invoice could use it to deduct
"[29] Even if the exercise of that right to deduct is limited only to taxes corresponding to a transaction subject to VAT (see Genius, paragraph 13), the risk of loss of tax revenue is not in principle completely eliminated as long as the addressee of an invoice incorrectly mentioning VAT could still use it for the purposes of such deduction under Article 18(1)(a) of the Sixth Directive (see, to that effect, Schmeink & Cofreth andStrobel, paragraph 57)." (Stadeco C-566/07)
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- Risk of loss must be assessed by reference to each invoice
"[26] It follows that Article 203 of the VAT Directive is applicable only where there is a risk of loss of tax revenue, which must be assessed on the basis of a specific invoice and which cannot depend on whether the services at issue of the taxable person concerned were supplied not only to non-taxable persons for VAT purposes, but also to other taxable persons subject to that tax..." (P C-794/23)
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- Necessary to determine whether recipient of invoice was taxable person and could assert right to deduct
"[26] ... Accordingly, for the purpose of assessing the existence of such a risk, it is necessary to determine whether the recipient of the given invoice is in fact a taxable person for the purposes of VAT and could, consequently, assert the right to deduct the input tax." (P C-794/23)
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- No liability where VAT incorrectly invoiced to a non-taxable person
"[27] In the light of the reasons given, the answer to the first question is that Article 203 of the VAT Directive must be interpreted as meaning that a taxable person who has supplied a service and who has stated on the invoice an amount of VAT calculated using the incorrect rate is not liable for the part of the VAT which was incorrectly invoiced to a non-taxable person, even if that taxable person has also supplied similar services to other taxable persons." (P C-794/23)
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- Query whether risk of loss can be ruled out where recipient uses supply exclusively for non-taxable purposes
"[44] According to the order for reference, Stadeco sent the Netherlands tax authorities a copy of a credit note made out to EDV whereas, in reality, Stadeco had neither drawn up such a note nor corrected the invoices in question in the main proceedings.
[45] It appears that, in the main proceedings, the risk of loss of tax revenue was only eliminated because, on the one hand, the status of the EVD as a public-law body and, on the other, the fact that EVD used the services of Stadeco exclusively for activities not subject to turnover tax in the Netherlands excluded any right to deduct in respect of that tax.
[46] However, as has been pointed out in paragraph 30 of this judgment, it cannot in a general manner be ruled out that complex circumstances and legal relations could stand in the way of a finding, in sufficient time, by the tax authorities that such considerations preclude the exercise of the right to deduct.
[47] In such circumstances, it must be held that making the refund of the VAT mentioned on an invoice subject to the requirement that that invoice be corrected, does not in principle go beyond what is necessary to achieve the objective of completely eliminating all risk of loss of tax revenue." (Stadeco C-566/07)
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- Right to deduct for recipient of invoice definitively refused: no loss
"[24] In providing that the VAT entered on an invoice is payable, Article 203 of Directive 2006/112 seeks to eliminate the risk of loss of tax revenue which the right of deduction provided for in Article 167 et seq. of that directive might entail (see, to that effect, Stadeco, paragraph 28, and Stroy trans, paragraph 32). It is apparent from the order for reference that, since the tax authority had definitively refused the recipient of the invoice at issue the right of deduction, such a risk does not exist in the case in the main proceedings.
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[33] Furthermore, as the referring court observes, since the tax authority had definitively refused the recipient of the invoice at issue the right of deduction, the risk of loss of tax linked to the exercise of the right was completely eliminated.
[34] In such circumstances, it must be held that making the adjustment of the VAT entered in error on an invoice subject to the condition that that invoice be corrected, a condition that is impossible to satisfy, goes further than is necessary to achieve the objective pursued by Article 203 of Directive 2006/112 of eliminating the risk of loss of tax revenue." ​(Rusedespred C-138/12)
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- Settling the amount shown on invoice eliminates risk of loss
"[57] It should be observed that, unlike the situation in Genius Holding, in the cases in the main proceedings the risk of any loss in tax revenues has been completely eliminated in sufficient time either because the issuer of the invoice has retrieved and destroyed the invoice before its recipient used it or because, although the invoice has been used, the issuer of the invoice has settled the amount shown separately on the invoice." (Schmeink & Cofreth C-454/98)
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Good faith​
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- Must be able to adjust improperly invoiced VAT where issuer acted in good faith
"[26] The Court has held that, in order to ensure the neutrality of VAT, it is for the Member States to provide, in their domestic legal systems, for the possibility of adjusting any tax improperly invoiced where the person who issued the invoice shows that he acted in good faith (see Case C-342/87 Genius [1989] ECR 4227, paragraph 18, and Stadeco, paragraph 36)." ​(Rusedespred C-138/12)
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- Unless it is no longer possible to cancel deduction granted
"[61] By contrast, as was the case in Genius Holding, where the risk of any loss of tax revenues has not been wholly eliminated, the Member States may make the possibility of adjusting VAT which has been improperly invoiced conditional upon the issuer of the relevant invoice having acted in good faith. As the national court has stated, if it transpires that it is no longer possible to cancel a deduction granted in respect of the addressee of the invoice and the issuer of the invoice has not acted in good faith, he may be held responsible for the shortfall in tax revenues in order to ensure tax neutrality." (Schmeink & Cofreth C-454/98)
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- Adjustment not conditional on good faith where risk of loss eliminated
"[27] However, where the issuer of the invoice has, in sufficient time, wholly eliminated the risk of any loss of tax revenue, the principle of the neutrality of VAT requires that VAT which has been improperly invoiced can be corrected without such adjustment being made conditional by the Member States upon the good faith of the issuer of the relevant invoice. The adjustment cannot be dependent upon the discretion of the tax authority (see Schmeink & Cofreth and Strobel, paragraphs 58 and 68, and Stadeco, paragraphs 37 and 38)." ​(Rusedespred C-138/12)
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"[57] It should be observed that, unlike the situation in Genius Holding, in the cases in the main proceedings the risk of any loss in tax revenues has been completely eliminated in sufficient time either because the issuer of the invoice has retrieved and destroyed the invoice before its recipient used it or because, although the invoice has been used, the issuer of the invoice has settled the amount shown separately on the invoice.
[58] In such circumstances, where the issuer of the invoice has in sufficient time wholly eliminated the risk of any loss in tax revenues, the principle of the neutrality of VAT requires that VAT which has been improperly invoiced can be adjusted without such adjustment being made conditional by the Member States upon the issuer of the relevant invoice having acted in good faith." (Schmeink & Cofreth C-454/98)
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Correction of the invoice​
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- Requirement to correct invoice can remove risk of loss but must not make refund excessively difficult
"[28] Thirdly, it should be borne in mind that the Member States may indeed adopt measures in order to ensure the correct levying and collection of the tax and for the prevention of fraud (see Stadeco, paragraph 39). In particular, the condition that an incorrect invoice must be corrected before a refund of the VAT invoiced in error can be obtained can, in principle, ensure the elimination of the risk of loss of tax revenue (see Stadeco, paragraph 42).
[29] None the less, the measures must not go further than is necessary to attain the objectives thereby pursued and may not, therefore, be used in such a way that they would have the effect of undermining the neutrality of VAT, which is a fundamental principle of the common system of VAT established by the relevant European Union law (see Stadeco, paragraph 39, and the case-law cited).
[30] Consequently, if the refund of the VAT becomes impossible or excessively difficult as a result of the conditions under which applications for tax refunds may be made, the principle of neutrality and the principle of effectiveness may require that the Member States provide for the instruments and the detailed procedural rules necessary to enable the taxable person to recover the improperly invoiced tax (see Stadeco, paragraph 40, and the case-law cited)." ​(Rusedespred C-138/12)
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- Member state preventing correction of invoice after right to deduct refused not proportionate
"[31] With regard to the case in the main proceedings, it is apparent from the order for reference that Bulgarian law provides, in principle, for the possibility of obtaining a refund of VAT invoiced in error, but makes the exercise of that right conditional on the prior correction of the incorrect invoice. As pointed out in paragraph 28 of this judgment, such a requirement can ensure the elimination of the risk of loss of tax revenue.
[32] However, it is also apparent from the order for reference that, pursuant to applicable national law, once the tax authority had definitively refused the recipient of the invoice the right to deduct the amount of VAT entered on it, the possibility of correcting the invoice at issue was no longer available to Rusedespred." (Rusedespred C-138/12)
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- Refund cannot be dependent upon discretion of Member State
"[38] In addition, that refund cannot be dependent upon the discretion of the tax authorities (Schmeink & Cofreth and Strobel, paragraph 68)." (Stadeco C-566/07)
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Discretion of Member State​
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Unjust enrichment​
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- Refund can be dependent on it not unjustly enriching issuer of invoice
"[48] In addition, in so far as it appears from the circumstances of the main proceedings that the Netherlands tax authorities have also made the refund of the VAT subject to the payment by the issuer of the invoice in question, to the beneficiary of the services performed, of the amount of tax incorrectly paid, it must be recalled that Community law does not prevent a national legal system from disallowing repayment of charges which have been levied but were not due, where to allow such repayment would lead to unjust enrichment of those having the right (Case C‑309/06 Marks & Spencer [2008] ECR I‑2283, paragraph 41 and the case-law cited).
[49] The existence and the degree of unjust enrichment which repayment of a charge which was levied though not due under Community law entails for a taxable person can be established only following an analysis in which all the relevant circumstances are taken into account (see, to that effect, Marks & Spencer, paragraph 43).
[50] It must be pointed out that it is for the national court to carry out such an analysis. In that context, it could be relevant whether the contracts concluded between Stadeco and EVD relate to fixed amounts of remuneration for the services provided or basic amounts increased, where appropriate, by the tax applicable. In the first case, there might be no unjust enrichment of Stadeco." (Stadeco C-566/07)
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Procedure​
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- For Member State to determine procedure for adjusting improperly invoiced VAT
"[65] As is apparent from paragraphs 47 to 49 above, it is for the Member States to lay down the conditions in which improperly invoiced VAT may be adjusted.
[66] The Member States may therefore decide, in particular, whether such adjustment should take place as part of the procedure for determining the tax payable or in the course of a subsequent procedure.
[67] As the Advocate General has observed in point 20 of his Opinion, a Member State may take the view that an adjustment of improperly invoiced VAT should take place during a later procedure in order to allow the tax authorities to verify that any risk of loss of revenue has been removed, especially where a deduction has been made in respect of the VAT in question.
[68] Nevertheless, when such a risk has been eliminated, adjustment in respect of improperly invoiced VAT cannot be dependent upon the discretion of the tax authorities." (Schmeink & Cofreth C-454/98)
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- Debt due to the crown
"(1) VAT due from any person shall be recoverable as a debt due to the Crown.
(2) Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as VAT or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply.
(3) Sub-paragraph (2) above applies whether or not—
(a) the invoice is a VAT invoice issued in pursuance of paragraph 2(1) above; or
(b) the supply shown on the invoice actually takes or has taken place, or the amount shown as VAT, or any amount of VAT, is or was chargeable on the supply; or
(c) the person issuing the invoice is a taxable person;
and any sum recoverable from a person under the sub-paragraph shall, if it is in any case VAT be recoverable as such and shall otherwise be recoverable as a debt due to the Crown." (VATA 1994, Schedule 11, para 5)
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"Where VAT has been charged wrongly on a supply by a taxable person, this has been shown as VAT on an invoice but has not been accounted for as VAT by the taxable person, no assessment can be made under section 73 as there is no VAT due.
However, Schedule 11 paragraph 5 can and should be used to protect the revenue where the amount shown as VAT could be used to support an input tax deduction by the customer. Here, the use of Schedule 11 paragraph 5 is not subject to a time limit." (VAEC9620)
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- Query validity of absence of time limit
"However, Schedule 11 paragraph 5 can and should be used to protect the revenue where the amount shown as VAT could be used to support an input tax deduction by the customer. Here, the use of Schedule 11 paragraph 5 is not subject to a time limit." (VAEC9620)
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- Concessionary relief for issuer's own input VAT
"However, where a supply has been made, exceptionally, and only where the supplier is neither registered nor required to be registered, you may, if certain conditions are met, allow the tax incurred on purchases directly related to the invoiced supplies to be treated as input tax.
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You may only allow the tax incurred on purchases directly related to the invoiced supplies to be treated as input tax provided all of the following conditions are satisfied:
- a supply has taken place
- there is satisfactory evidence of the tax incurred
- there is positive evidence of costing the supply on the tax-exclusive cost of the trader’s purchases
- it does not exceed the amount recoverable under Schedule 11 paragraph 5(2), and
- the claim does not include VAT on capital goods or petrol.
In many cases there will be no relief because the supplier will have completed each sales invoice by simply adding VAT to the total and not by costing the supply to take account of the tax-exclusive value of his own purchases." (VAEC9640)
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Deduction of improperly charged VAT​
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- 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)
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"Where the Extra Statutory Concession, see VAEC9670, does not apply, consideration should be given as normal to referring the case to the appropriate regional office for assessment action against the customer to recover the input VAT claimed.
For example
- if no supply has been made,
- the customer has not acted in good faith, or
- has received the invoice from a taxable supplier.
Interest is not normally inhibited, but there may be a need to inhibit any penalties." (VAEC9680)
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Customer right to direct refund of improperly charged VAT​
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- Customer must have direct right where supplier out of time to make claim due to length of time it took to decide whether VAT properly charged
"[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.
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[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."(Greentech C-640/23 - as noted, lower court held VAT was due)
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