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.