C\u2011680\/23. \u2013 Modexel<\/b><\/p>\n
The ECJ held in Modexel case that in the case of cessation and resumption of the economic activity, the taxable person may not carry excess VAT, declared at the time of that cessation of activity, forward to a period after the resumption.<\/p>\n
The plaintiff of the background case ceased its economic activity from 28 February 2015 and set out a VAT credit of more than twelve thousand euros in its closing VAT return. That VAT credit was however not reclaimed within the twelve-month forfeit deadline provided by the Portuguese law, but the plaintiff declared it as a recoverable VAT in May 2016 when they resumed their economic activity.<\/p>\n
The Portuguese tax authority refused the VAT deduction on the ground that the plaintiff missed the forfeit deadline for the VAT reclaim. The plaintiff lodged an administrative act against the tax authority\u2019s decision before the Administrative and Tax Court of Funchal which referred the case to the ECJ as the court found that it is unclear from the regulation what is meant by \u201cfollowing period\u201d for the purposes of the utilisation of the VAT credit; is it referring to the period immediately following, in the calendar, the period in respect of which the VAT credit was declared or there can be breaks between the periods.<\/p>\n
The ECJ took the view that an interpretation giving an economic operator the possibility of carrying forward, after resumption of an economic activity, excess VAT declared when the previous activity ceased could encourage abuse and the establishment of artificial arrangements by economic operators.<\/p>\n
The court held that an operator who ceases economic activity also ceases to be a taxable person for VAT purposes, namely there is no \u2018following period\u2019 after the termination of the activity nor \u2018previous period\u2019 when the activity is resumed. The court has also confirmed that it is in accordance with the principles of the common system of VAT if a Member State sets out a twelve-month forfeit deadline for the VAT reclaim in case of termination of the business activity.<\/p>\n