ECJ rules on possibility of deducting VAT after statute of limitations period
ECJ - deducting VAT after statute of limitations period
On 12 April 2018, the European Court of Justice ("CJEU" or "the Court") ruled in Case C-8/17 on the possibility of deducting VAT on purchases made after the end of the statute of limitations period (4 years in Portugal).
Flexipiso acquired raw materials from a Portuguese supplier with a reduced VAT rate of 5% between 2008 and 2010. Following an audit of the supplier (Biosafe), the tax authorities ruled that, for the 2008-2010 deliveries, the standard VAT rate of 21% should have been applicable, and hence the supplier was required to pay the additional VAT on those sales. As a result of this audit, the supplier issued correction invoices in 2012 requesting Flexipiso (the customer) to pay the VAT difference. Flexipiso refused to pay these invoices on the grounds that the statute of limitations period had ended and it did not have the right to deduct VAT on them.
According to the CJEU, the VAT Directive precludes legislation that restricts the right to deduct in this type of situation, unless fraud is involved. The Court set out the essential conditions for the exercise of the right to deduct VAT, pointing out that it cannot be exercised in the absence of a properly prepared invoice, as was the case here. In other words, it is true that the limitation in time of the right to deduct VAT is justified, but in this situation, all the circumstances of the case should be taken into account, including the fact that without having a correct invoice, Flexipiso could not have the right to deduct VAT.
This decision issued by the CJEU complements the provisions in Romanian legislation that, for invoices issued after a tax audit, beneficiaries are entitled to deduct the related VAT, even if the statute of limitations period has ended, but within a maximum of one year after receipt of corrected invoices
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