The taxpayer is a hotel and restaurant operator. It incurred legal fees and deducted the input VAT. The tax authorities challenged this recovery on the basis that the descriptions on the invoices were insufficient to identify the services supplied. There were two types of descriptions used: ‘Fees for legal services from [date] until present date’ and ‘Fees for legal services until present date’. When challenged, the taxpayer did provide further details, which were annexed to the invoice, but the tax authorities still refused the input tax deduction on the basis that these were not equivalent to invoices. Whilst concluding that the invoices did not meet the level of detail required under the VAT Directive this should not undermine the taxpayer’s right to input VAT recovery.
Were the invoices compliant with the VAT Directive?
The reference only considered Article 226(6) of the VAT Directive but the CJEU (the Court) considered it was appropriate to consider Article 226(7) as well. For ease these are reproduced below:
(6) The quantity and nature of the goods supplied or the extent and nature of
the services rendered; and
(7) The date on which the supply of goods or services was made or
completed or the date on which the payment on account referred to in
points (4) and of Article 220 was made, in so far as that date can be
determined and differs from the date of issue of the invoice.
The Court agreed with the Advocate General (AG) that the purpose of the content of an invoice is to allow the tax authorities to monitor payment of the tax and, where appropriate, the right to deduct. The Court agreed with the Portuguese Government’s written observation that the phrase ‘legal services’ could cover those connected with a non-economic activity. The Court concluded that the description of just legal services does not satisfy the condition in (6). The Court added that on the basis the services were continuous supplies, invoices with no start date also did not meet condition (7).
The impact on input recovery by the recipient?
Article 178(a) requires that for input tax deduction the taxable person must hold an invoice drawn up in accordance with Article 226. The Court referred to established case law that has held that deduction of input VAT must be allowed if the substantive requirements are satisfied, even if some formal conditions have not been complied with (para 42). The Court goes on to conclude that input VAT cannot be refused solely on the basis that invoices fail to comply with Article 226(6) and (7) where the authorities have all the information available to confirm that the substantive conditions for recovery are satisfied. The tax authorities must take into account the additional information as required under Article 219.
The judgment goes on to remind the referring court that it is the supplier that is ultimately responsible for the invoice. If there is an issue with an invoice a Member State can lay down penalties to penalise non-compliance.
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