In an order dated 3 march 2021, the European Court of Justice (“ECJ”) considered the lawfulness of a limitation period on the right to seek a reduction in the taxable amount in the case of cancellation, refusal or total or partial non-payment after the supply takes place.
In the case at hand, the taxpayer had issued a number of invoices including Value Added Tax (“VAT”) to a partner company. The taxpayer had remitted the VAT to the Hungarian tax authorities. However, the invoices were never settled and the partner company was eventually put into liquidation. Finally, the liquidator declared that the debt related to the unpaid invoices had become irrecoverable. The taxpayer applied for the recovery of VAT remitted in respect of those invoices.
This request was denied on the ground that the five-year limitation period to request a reimbursement had expired. In fact, under Hungarian law transposing the EU VAT Directive, the limitation period began to run from the date on which the payment obligation was to be performed (i.e the date mentioned in the invoices) rather than from the date on which the debt became irrecoverable.
Drawing on previous cases, the ECJ reiterated a number of principles. First of all, that the principle of fiscal neutrality means that the formalities to be complied with by taxable persons in order to obtain a reduction of the taxable amount must be limited to those which make it possible to prove that the consideration will definitely not be received after the transaction has been concluded. Secondly, the ECJ found that the possibility of applying for the refund of VAT without any temporal limit would be contrary to the principle of legal certainty. Finally, the ECJ recalled the Volkswagen (C-533/16) case where it had already held that Union law precludes legislation of a Member State under which the benefit of the right to reimbursement of VAT to a taxable person is refused on the ground that the limitation period provided for in that legislation for the exercise of that right began to run from the date of supply of the goods and expired before the application for reimbursement was submitted.
In conclusion, the ECJ held that where a Member State provides for a limitation period after which a taxable person, holding a claim that has become definitely irrecoverable can no longer assert his right to obtain a reduction in the taxable amount, that limitation period must begin to run not from the date of performance of the payment obligation initially provided for, but from the date on which the debt has become definitively irrecoverable.