Will the EU now permit VAT deductions on the basis of non-compliant purchase invoices?

In a recent ruling the Court of Justice adopted the viewpoint that the tax authorities cannot refuse the right to deduct VAT just because certain required information was not stated on an invoice. In this particular case the authorities had all the information required to check whether all material conditions for exercising this right of deduction were met.

1. Principle: no compliant invoice - no deduction

Both EU law (the VAT Directive) and Belgian legislation assume that the VAT-payer must have a compliant purchase invoice in order to have the right to deduct VAT (and, of course, the VAT must also be related to an activity or transaction that entitles a deduction – we will not be further examining this point within the scope of this article). The notion of a ‘compliant purchase invoice’ must here be understood to be an invoice that contains all the required information as listed in the list of information that must appear on an invoice.

By virtue of this list it is required that, among other things, the invoice must state the scope and nature of the services provided, but with it not being specifically prescribed that the said services must be exhaustively detailed. It was exactly this sore point in the case that the European Court of Justice was presented with.

2. A vague description without a definite period stated on the invoice

A Portuguese VAT-payer acquired legal services from a legal firm. The legal firm had dispatched invoices with VAT for these services upon which was stated: ‘legal services in the period from … to the present’.

In her VAT return the VAT-payer had deducted the VAT charged in these invoices. But the Portuguese VAT authorities believed that this deduction was unjustified, as the invoices did not comply with the statutory requirements because the services performed were insufficiently detailed.

3. ....does still not suffice as invoice information!

The Court of Justice adhered to the reasoning of the Portuguese VAT authorities in the sense that the description on the invoices issued by the legal firm was inadequate because, on the basis of the description, the services provided cannot be determined to a sufficient extent. If ongoing services are involved, the invoice must clearly state the period to which the invoice pertains. Consequently, the invoice must contain both the start date and the end date of the period in which the services concerned were performed.

4. But this does not hinder the right to deduction!

After ruling that the invoices did not comply with the statutory requirements, the Court of Justice had an important addendum. If, notwithstanding a ‘formal defect’ on the invoice, it can be determined that the VAT is justifiably deducted, the VAT authorities may not refuse it. After all, the VAT authorities must take into account all the information on the invoices concerned as well as the supplementary documents and/or additional information submitted by the VAT-payer. The Court thus explicitly adopted the assertion that the right to deduction cannot be declined just because the invoice does not comply with all the formal requirements of information on an invoice.

The Court moreover found that the above reasoning did not prevent the imposition of a monetary fine or sanction, in the event of such formal breaches, proportionate to the gravity of the defect, for the purposes of penalising that non-compliance with the formal conditions.

5. What does this mean in concrete terms for Belgian invoices?

The fact that the Court of Justice ruled as it did is very good news for VAT-payers, certainly in a strictly formalised context in Belgium, but one must still treat the standpoint with care.

The ruling is not a free pass to stop checking whether received purchase invoices are complete and correct. On the one hand the Court of Justice sees no problem with (proportionally) penalising non-compliance with the formality requirements, which means that the Belgian VAT authorities can feel as if that point has been corroborated. On the other hand, in certain cases this standpoint can help us to temper the often stringent approach of the VAT authorities and to safely assert the right to deduction in situations where the invoice is not wholly compliant but where the actual circumstances or other documents completely substantiate that right to deduction.

Legally most correct solution
Successive usufruct: The Flemish Tax Office (Vlabel) confirms the method of levying the registration duties
On 10 December 2018, a remarkable position was published on the Vlabel website (Position no 18083 of 26 November 2018). The real estate tax system is becoming more and more sophisticated with more (tax) advantages. The question must therefore be asked whether the well-known "simple" usufruct will not be partially replaced by transactions with a double or successive usufruct. In the area of registr
From 1 January 2019
New Flemish Lease Decree
On 24 October 2018, the Flemish Parliament approved the new Flemish Lease Decree. In our newsletter of 26 October 2017, we already hinted at the changes that this new decree will bring about. One of the most important changes remains the decree's broad scope. On the one hand, extensive regulations are provided for the rental of a house intended as a main residence. What is new here is that the ter
Confirmed in writing to our office
Confirmed: both usufructuary and bare owner are to be included in the UBO register
The Belgian Ultimate Beneficial Owner (UBO) register went live on 31 October 2018. On the basis of the legal texts and the explanatory notes, as ultimate beneficiary/ies of companies, the natural person(s) who directly or indirectly hold(s) a sufficient percentage of the voting rights or of the ownership interest in this company must first be notified. A holding of at least 25% is an indication of
The advantage is a taxable benefit
Fiches and withholding tax on benefits granted by foreign companies
Should payments received from a foreign company be subject to withholding tax and should this be declared on a fiche? At the moment, the answer to this question is negative in most situations, but this is set to change. A new draft law dated 18 December 2018 provides for the introduction of a tax fiction that requires the (Belgian) employer of the beneficiary employee not only to withhold withh
The requirement to register gets a broader scope
More entrepreneurs must register with the Crossroads Bank for Enterprises (CBE)
Under the aim of creating a more attractive business climate, changes were made to the existing company law. In that context, the legislator has done away with the ‘trader’ concept, replacing it with the umbrella term ‘enterprise. Besides forming the basis for the rules of the Code of Economic Law, the Judicial Code and the Civil Code, the new enterprise concept also has consequences for reg
More specific: matrimonial property law
A new compensation obligation in the legal system
What if a spouse practices his profession in a company whose shares all form part of his separate property? The Act of 22 July 2018 has introduced considerable changes to matrimonial property law. This article addresses a specific addition to that law, namely the possible disadvantage incurred by the matrimonial property when a spouse practices their profession through their own company1. 
Changes in the cary proxy and usufruct
Estate planning: recent developments
Over the last few months, we have regularly reported on the important changes in estate planning and inheritance planning. Below is an update of some of those changes.   The care proxy: secure your estate for later The classic example is a person who, due to a physical or mental limitation (e.g. coma, dementia), is – temporarily or permanently – unable to manage their assets properly.
Happy Brexmas?
How to prepare your company for Brexit?
On 10 December 2018, the British Prime Minister decided to postpone the vote on the Brexit deal in the House of Commons. The risk of a ‘no deal’ disaster scenario is increasing. What are the important dates? On 29 March 2017, the United Kingdom formally informed the European Council of its intention to leave the EU (according to the procedure provided in Article 50 of the Lisbon Treaty). C
A popular control structure
The all-powerful manager of a civil-law partnership: was it always a fiction?
The civil-law partnership has long been a popular control structure among wealth planners. In many cases, donors do not want to give up their assets entirely, and still want to retain some control over what they donate. Definitely in cases of transfers of family companies, the donors (often parents or family members) still want to retain control over the course of the business.  The advant
The tax framework
Company subsidies: exempted or not?
Various subsidies were briefly described in the article by our colleagues from Strategy and Operations. They explained that they can assist you and your company with guidance on subsidies, from A to Z.1 In this context, we would like to discuss the tax framework for subsidies: how are awarded subsidies treated tax-wise within companies? Are these subsidies exempt from corporation tax and, if

Subscribe to our newsletter