On 2 July 2020, the European Court of Justice (“ECJ”) issued its judgment in case C‑835/18, SC Terracult SRL on the possibility for a taxable person to adjust an invoice and claim a refund of unduly paid VAT despite a final VAT assessment having been issued.
The case concerned a Romanian commercial company, named SC Terracult (formerly Donauland SRL, "Terracult") which sold rapeseed to a German commercial company, named Almos Alfons Mosel Handels GmbH ("Almos"). During a VAT audit of Terracult, the Romanian VAT authorities discovered that a supply of rapeseed was considered as an exempt intra-community supply of goods while the rapeseed never left the Romanian territory. The Romanian tax authorities issued a VAT assessment according to which Terracult, as the supplier, carrying out a purely domestic supply of goods, was liable to pay Romanian VAT to the national Treasury. Terracult did not appeal against the VAT assessment, which became final, and issued a rectifying invoice to Almos by applying Romanian VAT on the supply of rapeseed. Almos reminded Terracult that the supply had been made to its Romanian fixed establishment which has a Romanian VAT number and that under Romanian VAT law, in case of a domestic supply of rapeseed, the person liable to pay VAT to the national Treasury is the purchaser under the reverse charge mechanism. Terracult, which had already paid the VAT to the authorities in accordance with the VAT assessment issued following the audit, applied for a refund of the unduly paid VAT. The request for a refund has been dismissed by the Romanian tax authorities and the Romanian court of first instance, because the VAT assessments issued after the VAT audit had become final. The Romanian court of appeal referred the case to the ECJ.
In its judgment, the ECJ ruled that the principle of neutrality of VAT obliges Member States to foresee a procedure, which allows a taxable person to adjust a situation in which VAT has been incorrectly invoiced and paid to the national Treasury. The ECJ also points out that such adjustment is not subject to the good faith of the issuer of the relevant invoice if there is no risk of any loss of tax revenue (such as for instance in case of application of the reverse charge mechanism and subsequent deduction of the self-assessed VAT by the purchaser, where in principle no amount is owed to the tax authorities). The ECJ also considers that the Romanian legislation and administrative practice is contrary to the principle of effectiveness as far as the period of 30 days after which a VAT assessment becomes final and during which the taxable person has to rectify his invoice is too short to give an effective opportunity to a taxable person to claim a refund of unduly invoiced and paid VAT. Finally, the ECJ finds that it would be possible for domestic law to foresee penalties in cases where a taxable person is negligent in adjusting his situation, but the ECJ considers that a total refusal of VAT refund would be contrary to the principle of proportionality.