Update: Direct claim ("Reemtsma claim") in case of wrongly paid VAT: Financial Court Münster refers case to ECJ (C-453/22-1)

If the recipient of the supply cannot recover the excess VAT from the supplier, a direct claim (or "Reemtsma claim") against the tax office may be considered under certain conditions.

The German Federal Ministry of Finance had defined the conditions and grounds for exclusion in a letter dated 12 April 2022 (details can be found in our online article). The Financial Court Münster pursued the topic and submitted a case to the ECJ (C-453/22-1), decision of 27 June 2022, 15 K 2327/20 AO.

Facts of the case

The plaintiff had purchased wood in 2011-2013 and subsequently received and paid the respective invoices with a 19 % VAT. However, a subsequent tax audit revealed that the reduced VAT rate of 7 % should have been applied. The plaintiff's tax office therefore reduced the input VAT deduction accordingly. The plaintiff then asked the seller for corrected invoices and a refund of the excess VAT paid. However, the seller raised the objection of the civil law statute of limitations and refused to correct the invoices and refund the excess VAT. The plaintiff then turned to the tax office to assert a direct claim for reimbursement of the VAT against the tax office, citing the ECJ’s "Reemtsma" case law, which the German Financial Courts and also the tax authorities generally recognise. He also claimed interest on the VAT amount. He brought an action against the tax office’s refusal before the Financial Court Münster.

Referral questions

The Financial Court Münster raised only one question for a preliminary ruling; however, the wording "in the circumstances of the main proceedings" and the reasoning give rise to three aspects requiring clarification:

  1. Can the recipient of the supply assert a direct claim as long as the supplier can still correct the incorrect VAT statement in the invoice pursuant to Sec. 14c (1) in conjunction with Sec. 17 German VAT Code (UStG)? According to the circular letter of the Federal Ministry of Finance (BMF) dated 12 April 2022, the tax authorities are of the opinion that this is not permissible. The Financial Court Münster pointed out that there is no limit on the amount of time a supplier has to correct the VAT. This means that it is theoretically possible for the supplier to reclaim the VAT from the tax office after all, but for the tax office to then be unable to )claim the refund from the recipient because, for example, the recipient has in the meantime become insolvent. A direct claim can therefore only be considered if it is certain that the tax cannot be claimed from the tax office a second time.
  2. Can a direct claim also be considered if the reimbursement claim against the supplier is no longer enforceable because the supplier has objected based on the statute of limitations? Can the recipient be required to take appropriate measures to suspend the statute of limitations? The Financial Court Münster points out that ECJ case law requires that the claim for reimbursement against the supplier is impossible or excessively difficult. The cases decided so far generally concerned the insolvency of the supplier, which is not the case here. It was therefore necessary to clarify whether it was sufficient that the supplier invokes the statute of limitations. In the opinion of the court, the plaintiff should also have taken precautions to secure his claims under civil law, e.g., by obtaining a waiver of the defence of limitation in good time.
  3. Does the direct claim also include interest? Financial Court Münster is of the opinion that even if the ECJ were to affirm a direct claim, the recipient would still not be entitled to interest pursuant to Section 233a of the German Fiscal Code because the interest had accrued in a period occurring before the direct claim was asserted.

Practical implications

In its circular letter dated 12 April 2022, the German Federal Ministry of Finance (BMF) set very strict requirements for direct claims.

The tax authorities do not want to take any risks and only reimburse the VAT directly to the recipient if there is no possibility that the tax authorities will be called upon again by the supplier. This is understandable from the point of view of the tax authorities, but this distribution of risk contradicts the role of the entrepreneur as a tax collector for the state. As the Financial Court Münster rightly pointed out, the supplier can correct the invoice and the VAT due for an unlimited period of time in accordance with Section 14c of the German VAT Code (UStG). If the direct claim is made dependent on this, it will come to nothing. One can only hope that the ECJ will rule in favour of the entrepreneurs in this case.

The claim that the recipient must actively take measures to suspend the statute of limitations cannot be derived from the ECJ case law. In particular, the Financial Court's reference to the fact that the plaintiff could have "obtained" the waiver of the statute of limitations defence does not seem very practical, as anyone who does not want to pay will not voluntarily waive the statute of limitations.

However, anyone wishing to be on the safe side in similar cases until the ECJ's ruling is issued should consider other measures under Sections 203 et seq. of the German Civil Code (BGB) to prevent the statute of limitations from expiring - first and foremost by filing a lawsuit against the supplier.