ECJ judgments

The CJEU has ruled on the recoverability of incorrectly charged VAT beyond the limitation period

C‑640/23. – Greentech

Incorrectly charged and paid VAT relating to a time-barred period is not deductible. However, the taxable person cannot be precluded from submitting a VAT refund request to the tax authority.

The Romanian company Greenfiber (the transferor) transferred assets to the Romanian company Greentech (the transferee) before 2015. The parties treated the asset transfer as subject to VAT, with Greenfiber charging VAT and Greentech deducting it. The Romanian tax authority conducted separate audits of the transaction for both the transferor and the transferee. The respective departments of the tax authority reached contradictory conclusions: while the tax authority accepted at Greenfiber’s level that the transaction fell within the scope of VAT, it established at Greentech’s level that the specific rules on the transfer of a business as a going concernshould apply, rendering the transaction outside the scope of VAT.

Consequently, Greentech was denied the right to deduct the improperly charged VAT.  Greentech challenged this decision and initiated proceedings before the administrative court after its appeal was dismissed by the superior tax authority. The administrative litigation lasted for years, ultimately reaching the highest administrative court. In the lower court proceedings, Greentech prevailed; however, the tax authority appealed the judgment. The appellate court largely agreed with the tax authority and remanded the case to the lower court for reconsideration. Greentech then filed a review petition against the appellate judgment. In January 2023, the highest administrative court partially annulled the appellate judgment and ordered a reassessment of the transaction’s classification. However, by that time, the period in which the parties had accounted for the VAT on the transaction had already become time-barred.

As a result, Greentech was no longer in a position to request an invoice correction from Greenfiber. The highest administrative court referred a preliminary ruling request to the Court of Justice of the European Union (CJEU), noting that, due to the statute of limitations, Greenfiber could no longer correct its invoice and VAT return, thereby making it impossible for Greentech to reclaim the erroneously charged VAT. In its judgment, the CJEU emphasized that only VAT that payable on taxable transactions may be deducted. Therefore, if the tax authority reclassifies a transaction as being outside the scope of VAT, there is no “payable” VAT that can be deducted. However, the CJEU confirmed that where the original reporting period has expired and the seller can no longer correct the invoice and VAT return, preventing the buyer from recovering the erroneously charged VAT from the seller, the buyer must not be precluded from submitting a VAT refund request directly to the tax authority.

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