Input VAT recovery on improper purchase invoices

Input VAT recovery on improper purchase invoices

On 8 May 2013, the Court of Justice of the EU (CJEU) has released its judgement in the case C-271/12, Petroma Transports SA et al. v. État belge.

Anthony Pace

Partner, Head of Tax

KPMG in Malta


The judgement confirms that:

  • a Member State is allowed to refuse a deduction in favour of taxable persons who received services but are in possession of invoices which are incomplete even if those invoices are supplemented by the provision of information seeking to prove the occurrence,nature and amount of transactions invoiced after such a refusal decision was adopted; and
  • the charging of VAT, by the service provider,is not conditional upon the actual exercise of the right to deduct VAT by the recipient of the services and thus the tax authorities are not required to refund the output VAT of the supplier in the case where the right to deduct input VAT was denied to the customer due to irregularities on the supplier invoices.
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Facts of the case

The case involved a Belgian group of companies of which Petroma Transports SA was the main company providing a number of intra-group services including the supply of staff. During inspections, the Belgian Tax Authorities questioned the deductions and found incomplete invoices. Most of these invoices included an overall amount, with no indication ofthe unit price or the number of hours worked by the staff of the service-providing companies. Such lack of detail made it impossible for the tax authorities to determine the exact amount of tax collected and to allow the input VAT deductions. The companies sought to supplement the invoices with further information which was however not accepted by the tax authorities, arguing that the information was submitted after the completion of the tax audit and comprised of contracts not binding on third parties and adjusted invoices that lacked any probative value.

The CJEU considered that at the time when the tax audit was carried out, the EU VAT Directive allowed Member States to lay down the criteria to determine whether a document could be considered to constitute an invoice. Under the current rules, it is sufficient for an invoice to include the minimum details required by the Directive and Member States cannot make the exercise of the right to deduct VAT dependent on compliance obligations which go beyond the provisions of the Directive.

This was also confirmed in the case, C-368/09 of 2010, Pannon Gép Centrum Kft whereby it was concluded that the right to deduct cannot be denied on grounds that the person was in possession of an invoice that contained an incorrect completion date for the supply of services and the numbering of the subsequently corrected invoice and credit note were not sequential, if the material conditions governing deduction are satisfied and an invoice with the correct date of supply is provided to the tax authority before a decision is taken by that authority.

This fact that amendments of incorrect invoices are not prohibited as long as they are made in due time was also confirmed in Petroma Transports SA.

Lessons from Petroma Transports SA

Petroma Transports SA highlights the underlying principle that for a taxable person to claim input VAT, he must be in possession of a proper tax invoice. It is thus pertinent that purchase invoices are checked by taxable persons for their compliance or, at least, for their adequacy ideally upon their receipt. Revisions of any improper invoices must be asked for immediately by the customer bearing in mind that in the event of a tax audit, the production of correct invoices would be time-bound. This might not be an easy task for groups of companies of significant size having a central back office centre processing volumes of transactions for entities across the globe. However, having check controls in place are tantamount to a reduced financial risk of having input VAT blocked. This does not underestimate the responsibilities and obligations of EU suppliers to issue proper tax invoices. From a local perspective, in the course of an inspection, the Maltese VAT authorities do look into invoices with particular scrutiny.

Tax invoice details

In conclusion and to recap, the following are the invoice details required by the EU VAT Directive:

  1. the date of issue;
  2. a unique sequential number;
  3. the VAT identification number of the supplier;
  4. the customer’s VAT identification number, under which the customer received a supply of goods or services in respect of which he is liable for payment of VAT, or received an intra-EU supply;
  5. the full name and address of the supplier and customer;
  6. the quantity and nature of the goods supplied or the extent and nature of the services rendered;
  7. the date on which the supply of goods or services was made or completed or the date on which the payment on account, in so far as that date can be determined and differs from the date of issue of the invoice;
  8. where VAT is accounted for on a cash-basis, the mention ‘Cash accounting’ (This would enable the customer to determine that he has a right to recover VAT only if he has settled the invoice.);
  9. the taxable amount per rate or exemption, the unit price exclusive of VAT and any discounts or rebates if they are not included in the unit price;
  10. the VAT rate applied;
  11. the VAT amount payable, except where a special arrangement is applied under which, in accordance with the Directive, such a detail is excluded;
  12. where the customer receiving a supply issues the invoice instead of the supplier, the mention ‘Self-billing’;
  13. in the case of an exemption, reference to the applicable provision of the Directive, or to the corresponding provision in the Maltese Value Added Tax Act, or any other reference indicating that the supply of goods or services is exempt;
  14. where the customer is liable for the payment of the VAT, the mention ‘Reverse charge’;
  15. in the case of the supply of a new means of transport made, the characteristics of the means of transport as required by the Directive;
  16. where the margin scheme for travel agents is applied, the mention ‘Margin scheme — Travel agents’;
  17. where one of the special arrangements applicable to second-hand goods, works of art, collectors’ items and antiques is applied, the mention ‘Margin scheme — Second-hand goods’;‘Margin scheme — Works of art’ or ‘Margin scheme — Collector’s items and antiques’ respectively; and
  18. where the person liable for payment of VAT is a tax representative, the VAT identification number of that tax representative, together with his full name and address.

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