Is the taxpayer entitled to a late payment interest if they calculated a lower proportion of deductible VAT by mistake?
Case C-674/22 – Gemeente Dinkelland | As long as the tax authority is not in delay with the reimbursement, the municipality is not entitled to late payment interest if the VAT reclaim arises from the retrospective increase of proportionally deductible VAT, partly on account of the correction of mistakes in the accounting records and changes in the regulations governing municipal accounting.
The plaintiff in this case is a Dutch municipality engaged in both public activities and economic activities falling within the scope of VAT – some subject to VAT and some exempt. The municipality allocated the VAT on its non-attributable costs based on a calculated allocation key according to specific accounting regulations. Subsequently, Dutch legislation on municipal accounting was retroactively amended, affecting the application of allocation keys.
Due to this legislative change, the municipality recalculated the proportionately deductible VAT for the years 2012-2016 and discovered errors in the original calculations. As a result of both the past mistakes and the more favorable legal provisions, the municipality had recoverable VAT, for which it also sought interest, claiming that it had to pay more VAT in violation of community law. The tax authority denied the payment of interest. The European Court clarified in this case that the allocation of deductible VAT must be carried out in proportion to the actual use, these rules should be established by the member states.
According to the court, it does not violate community law if the member state places the responsibility for determining the appropriate allocation key on the taxpayer. In this case, it was not disputed that the calculation methods under the old Dutch law did not deviate from the actual usage ratio. Under such circumstances, it cannot be considered a violation of community law in tax collection when the taxpayer, due to their own mistakes, does not fully practice their right to deduct VAT, and it is the taxpayer’s responsibility to determine the actual usage ratio under the new (more favorable) legislation. However, interest is due to the taxpayer if the tax authority does not refund the requested VAT within a reasonable time. In this regard, the eight-week disbursement deadline provided by Dutch law is not considered unreasonable.
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