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Formal invoice irregularities do not always lead to non-deductibility VAT

In two recent cases, the European Court has ruled that input VAT deduction could not be denied solely based on small formal irregularities.

In a German Case, Senatex, the business received invoices from service providers that did not contain the VAT registration number of the service providers. Furthermore, Senatex had issued self invoices for commissions which also did not contain the agents VAT registration numbers. Senatex had reclaimed the VAT on these invoices.

During an audit Senatex had requested the service providers to correct the invoices as issued. The corrected invoices were provided to Senatex during this time. The German tax office did not want to grant retrospective power to these corrected invoices and claimed the VAT could only be reclaimed in the period when the corrective invoices were received.

The European Court rules that the corrected invoices do have retrospective power based on the fundamental principles of VAT neutrality. Based on this principle deduction of input VAT should be allowed if the substantive requirements are satisfied. The substantive requirements are

  1. the supplier and recipient are taxable persons and
  2. the goods and/or services are used for making taxable output supplies.

Formally, in order to exercise the right to deduction, a legal invoice has to be available. However, minor invoice errors do not undermine the input VAT recovery rights.

In the Barlis case, the Portuguese company received invoices that did not contain a valid description of the services provided. The invoices just mentioned ‘legal services rendered from (date) until present date’. The Portuguese tax office denied the reclaim. The European Court has ruled that indeed the invoice did not meet the requirements as stated in the European Directive, but the deduction could not be denied just because of formal irregularities as all other material requirements for deduction are met.

The two cases show that irregularities in invoices should not always lead to non-deductibility, there are more facts to consider.

Source: ECJ 15 September 2016, C-518/14 and C-516/14

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