Can the right to reduce the tax due be made conditional upon obtaining acknowledgements of receipt for corrective invoices? We argued that such a requirement is contrary to EU law – in one of the first cases of this kind following the amendment.
Client's situation
Whilst working on VAT returns for our client, we found that the company issues between a dozen and several dozen downward-adjusting correction invoices each month to domestic customers. At the same time, it experienced significant difficulties in obtaining and compiling confirmations of receipt for these invoices in a timely manner.
The problem became more acute following the amendment to the VAT Act, which came into force on 1 December 2008 – this amendment made the reduction of turnover (and VAT due) conditional upon the customer providing confirmation of receipt of the corrective invoice.
The issue
DMS TAX’s task was to assess the point at which the company could recognise downward-adjusting invoices and to protect the client against the risk of a dispute. In our view, the amended provisions – which made the reduction in turnover conditional upon confirmation of receipt – were inconsistent with Directive 2006/112/EC (the VAT Directive).
Our approach
We prepared an application for an individual ruling, setting out a comprehensive legal argument demonstrating that the new regulations are contrary to the principles of EU law, and that the taxpayer may account for credit notes in the period in which they were issued.
The Minister of Finance did not agree with our arguments. Ultimately, the case was brought before the provincial administrative court.
The basis for recognising adjustments in the relevant period
The court confirmed that the provisions of the VAT Act requiring proof of receipt of a corrective invoice are contrary to the VAT Directive. This was one of the first judgements on this issue following the amendment of the legislation.
For the client, this provided a basis for reducing the tax due in the period in which the correction was issued – without making settlements dependent on confirmations of receipt, which are difficult to obtain, and thus without the risk of overstating the tax liability and without unnecessary administrative burden.
What this means
This case forms part of a broader line of case law, favourable to taxpayers, concerning the conditions for reducing VAT in the event of downward adjustments. It highlights the value of identifying risks in tax returns at an early stage and consistently defending a position based on EU law.