Rulings of the Court of Justice of the European Union – VAT
C-590/13 Idexx Laboratories Italia Srl
Deduction of VAT payable on intra-Community acquisition of goods
ECJ ruled that disrespecting the formal requirements relating to the right of input VAT deduction cannot result in the loss of that right if all substantive requirements governing such right are satisfied.
On 11 December 2014 the Court of Justice of the European Union (''ECJ'') issued its ruling in the proceeding between Idexx Laboratories Italia Srl (''Idexx'', the ''Company'') and the Agenzia delle Entrate-Unifficio di Milano 1 (Italian Tax Administration - office Milano 1). The subject of discussion was Idexx's right to deduct value added tax (''VAT'') arising from intra-Community acquisition of goods. The ruling refers to provisions of the Sixth Council Directive which was in force at the time when the relevant transactions occurred. It was subsequently repealed by the VAT Directive which is currently in the force.
During the year 1998, Idexx effected intra-Community acquisitions of goods which were subject to VAT. Italian Tax Administration conducted a tax audit over that period and ascertained that the Company has failed to comply with the formalities of recording such intra-Community acquisitions in the books and it did not declare corresponding VAT liability. As a result, by the way of resolution the Tax Administration assessed the VAT liability deriving from those intra-community acquisitions of goods.
Idexx has filed an appeal on the resolution, stressing that the Italian Tax Administration had no right to request payment of the assessed VAT due to the fact that it has completely disregarded Idexx’s right to deduct related input VAT which, in the present case, cannot be disputed. The Company also noted that, in this case, the VAT liability is merely theoretical and it does not influence VAT position of the Company. That is because both VAT liability and deduction of input VAT deriving from intra-Community acquisition of goods are simultaneously declared (thus the final tax position equals to zero).
ECJ ruled that disrespecting the formal requirements relating to the right of input VAT deduction cannot result in the loss of that right if all substantive requirements governing such right are settled.
In the commentary of the ruling the ECJ stated the fundamental principle of neutrality of VAT requires the deduction of input tax to be allowed if the substantive requirements are satisfied, even if taxable person has failed to comply with certain formal requirements. Substantive requirements concerning the right to deduct input VAT govern origin and scope of that right. The Sixth Directive stipulated following substantive requirements in respect of deduction of VAT resulting from the intra-Community acquisition of goods: those acquisitions must be affected by taxable person who must be liable for VAT payable on those acquisitions and the goods in question must be used for the purposes of acquirer’s taxable transactions. On the other hand, formal requirements govern the way of executing the right of deduction and inspection over that execution (e.g. bookkeeping, invoicing and compliance requirements).
Following the above, the ruling in question provides that the tax authorities, even in cases where the VAT liability on intra-Community acquisition of goods is assessed by the way of resolution on the tax audit, cannot withhold the right to deduct input VAT if the substantive requirements for the deduction are settled. Note that the above mentioned substantive requirements provided by the Sixth Directive were transferred to the stipulations of the VAT Directive which is currently in force.