The CJEU has concluded that the taxpayer’s right to deduct VAT is when the initial incomplete invoice, which was later corrected, is drawn up.
Senatex is a wholesale textile business. During an inspection, the German tax authorities found that the taxpayer had issued commission statements to agents, used these as self-billed invoices and deducted input VAT. However, these did not include the agents’ VAT numbers. The authorities also found invoices from an advertising designer, which also did not include the supplier’s VAT number. The tax authorities assessed to disallow the input VAT claimed, on the basis that these documents did not constitute valid invoices. The taxpayer then corrected the invoices to include the relevant VAT numbers. The tax authorities amended their assessment, but on the basis that this right only arose at the later time when the invoices were corrected. This effectively resulted in an assessment for interest on VAT claimed too early. The CJEU (The Court) has supported the taxpayer’s right to VAT recovery when the original invoices were drawn up.
The Court began by recalling a number of well-established input VAT principles, starting with the right of immediate recovery, which is intended to relieve the operator entirely of the burden of the VAT which it has paid. The Court then went on to address the fundamental principle of the neutrality of VAT, which requires input VAT deduction if the substantive requirements are satisfied (para 38). The substantive requirements are essentially that the:
The Court added that the holding of an invoice is a formal not substantive condition. The Court concluded that the fact that the invoice failed to comply with all of the formal conditions governing the contents of a VAT invoice, does not alter the time at which Senatex was entitled to recover input VAT on the supply, which was the earlier time.
TheTerra Bauberdarf-Handel (C-152/02) case was distinguished on the basis that in that case the taxpayer never held an original, albeit incorrect, invoice at the time it received the supply. The only invoice Terra received was correct, but it was not received until a later date. At the time of exercising its right to deduct, Senatex had paid the input VAT that it had incurred and it held an invoice.
Given the significant time gap between this and the Advocate General Opinion (AGO), there were concerns that the CJEU may overturn the AGO. However, in agreeing with the AG, this makes this an important case for taxpayers. This case supports the position that, as long as a business has incurred VAT in making taxed transactions then it has met the substantive requirements to make an input VAT deduction. Any minor errors, even the omission of the supplier’s VAT number on an invoice will not undermine historic input VAT recovery rights, where the invoices can be corrected.
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