EC rules on penalty acquisition tax

Facts

The plaintiff, the Austrian company D-GmbH, purchased goods from suppliers in Austria and had them delivered to other EU Member States. In doing so, it used its Austrian VAT ID number. The suppliers issued invoices with Austrian VAT, which D-GmbH deducted as input VAT. In the course of a tax audit, the Austrian tax authorities assessed D-GmbH for VAT on intra-Community acquisitions due to the use of the Austrian VAT ID in accordance with the Austrian regulation corresponding to Art. 41 of the VAT Directive. The supplies were in principle VAT-exempt as intra-Community supplies (in the years in dispute, 2011-2015, the use of a VAT ID other than that of the country of dispatch was not yet a material requirement for VAT exemption), but the suppliers owed VAT under the Austrian regulation corresponding to Art. 203 of the VAT Directive because of the VAT shown on the invoice. This was not deductible as input VAT for D-GmbH.

The referring Austrian administrative court had doubts whether this practice constituted a violation of the principles of neutrality and proportionality. This approach could possibly be contrary to the ECJ ruling C-696/20 of 7 July 2022, in which, in a similar case, penalty acquisition tax was excluded if the supplier also owed VAT.

EC decision

The European Court sees no reason not to apply the provision on VAT liability due to the VAT shown on the invoice and the provision on penalty acquisition tax due to the use of a VAT ID that is not that of the country of destination. The provisions are subject to different conditions of application and each pursue its own objectives. As regards the principle of neutrality, the applicant is indeed not entitled to deduct input VAT from the suppliers' invoices. However, the suppliers can correct the invoice and the VAT at any time, and D-GmbH can seek reimbursement of the VAT from the suppliers through civil law proceedings. If the latter is impossible or excessively difficult, it can assert a direct claim against the tax office (ECJ judgment C-397/21 of 13 October 2022, HUMDA). This restores neutrality.

This was not possible in ECJ case C-696/20. In that case, Polish law did not allow the supplier to correct invoices issued with VAT. The supplier was therefore ultimately liable for this VAT, and the customer was ultimately burdened with non-deductible input VAT. In this specific situation, the penalty acquisition tax could not be added.

Analysis from a German perspective

It should be noted that this ruling relates to an old case. Under current law (Art. 138 (1) (b) of the VAT Directive) the use of a VAT ID other than that of the country of dispatch is a substantive legal requirement for a VAT-exempt intra-Community supply. If the EC case occured today and in Germany, the VAT would be legally payable by the suppliers and deductible as input VAT for D-GmbH.

There is no VAT burden on the customer that is contrary to the system, because of the customer’s right to deduct input VAT. In addition, the German tax authorities even allow the VAT ID number to be used retrospectively, with retroactive effect from the date of the intra-Community supply, Section 6a.1 (19) sentence 3 UStAE (administrative guidelines to the German VAT Code). It can therefore be assumed that, even under the current legal situation, the European Court would approve penalty acquisition tax, as there would be no double taxation beyond that which always arises from penalty acquisition tax. 

The case shows how carefully companies must examine cross-border supply transactions. This applies in particular to chain transactions. Anyone who uses the VAT ID of the country of departure for an intra-Community supply and therefore receives an invoice with VAT can claim input VAT deduction if they are generally entitled to do so. However, it can easily be forgotten that even a taxable intra-Community supply leads to an intra-Community acquisition in the country of destination, which requires VAT registration. The additional penalty acquisition tax without input VAT deduction must be declared and paid until the regular acquisition tax in the country of destination can be proven.

Author: Nadia Schulte