GCEU judgment on intra-EU trade and incorrectly charged VAT

Background

D GmbH ("D"), is an Austrian limited liability company that acquired goods from suppliers established in Austria and had those goods transported to other Member States. For the purposes of these acquisitions, D communicated its Austrian VAT identification number to its suppliers. The suppliers issued invoices and charged Austrian VAT, despite these supplies being VAT-exempt intra-Community supplies (zero-rated). D took the position that the incorrectly charged Austrian VAT was deductible as input VAT and that the intra-Community acquisitions are not taxable in Austria. During a tax audit covering the years 2011–2015, the Austrian tax authorities took a different view and imposed corresponding VAT assessments.

The dispute centers on the interplay between Articles 41 and 203 of the VAT Directive. Article 41 provides that an intra-Community acquisition is VAT taxed in the Member State that issued the VAT identification number as used by the acquirer (“number acquisition”), unless the acquirer proves that the acquisition was taxed in the Member State of arrival of the goods. Article 203 provides that VAT is owed by any person who mentions that tax on an invoice, regardless of whether it has been incorrectly charged.

The tax authorities argued that D had used its Austrian VAT number for the acquisitions and had not demonstrated that these acquisitions had been subject to VAT in the Member States of arrival. Consequently, these number acquisitions were VAT taxable in Austria under Article 41. Additionally, since the corresponding intra-Community supplies were VAT-exempt, the suppliers had incorrectly charged Austrian VAT on their invoices which is payable under Article 203 of the VAT Directive. D was denied the right to deduct that incorrectly charged VAT. The Austrian Federal Fiscal Court relied on a 2022 judgment by the Court of Justice of the EU in the case of C-696/20 (Dyrektor Izby Skarbowej). The tax authorities then brought the matter before the Administrative Court, which referred questions to the GCEU for a preliminary ruling.

GCEU judgment

The GCEU held that Articles 41 and 203 of the VAT Directive, as well as the principles of VAT neutrality and proportionality, do not preclude national legislation that taxes a number acquisition in the Member State of departure, even where the corresponding intra-Community supply is VAT-exempt and a VAT liability exists in that Member State due to erroneously invoiced VAT.

The GCEU reasoned that the number acquisition mechanism aims to ensure that a given intra-Community acquisition is taxed and to prevent double taxation. Article 203, by contrast, following which incorrectly charged VAT is payable, is aimed to prevent the risk of loss of VAT revenue. These provisions have different conditions and purposes, and nothing in the VAT Directive prevents their simultaneous application.

Crucially, the GCEU distinguished the present case from an earlier judgment of the EU Court of Justice in case C-696/20 (Dyrektor Izby Skarbowej). In that case, the tax authorities had refused to grant the VAT exemption for the intra-Community supply and instead treated it as an ordinary VAT taxed transaction. This meant that VAT was definitively due on the supply itself and this could not be corrected. As a result, an additional taxation under Article 41 would effectively result in double taxation, which the EU Court of Justice found incompatible with the principles of neutrality and proportionality. In the present case, by contrast, the intra-Community supply is correctly treated as such and the VAT liability arises solely from Article 203, which can be corrected by amending the invoice.

The GCEU emphasises that the principles of VAT neutrality and proportionality are safeguarded where national law allows for correction of incorrectly charged VAT when the invoice issuer demonstrates good faith or has eliminated the risk to tax revenue in a timely and complete manner. The referring court had confirmed that Austrian law permits unlimited correction of erroneous invoices, even after the statute of limitations has expired.