No input VAT deduction without an invoice, but a faulty invoice may be sufficient - ECJ "Wilo Salmson France SAS" (C-80/20)

ECJ confirms in its judgement of 21 October 2021 (C-80/20) in the "Wilo Salmson France SAS" case: input VAT cannot be deducted unless there is an invoice. The input VAT deduction must be made for the taxation period in which the invoice was available. For this purpose, it must contain the essential attributes of an invoice, although other attributes can be added later with retroactive effect. If an invoice, once issued and containing the essential attributes, is unilaterally cancelled and reissued, the taxation period for which the invoice was first issued nevertheless remains the correct period for the input VAT deduction.

Incorrect invoices from 2012 were corrected in 2015

Wilo Salmson (respectively, a predecessor company) had purchased equipment in Romania in 2012, received the associated invoices with Romanian VAT that same year, and applied for an input VAT refund for 2012. The Romanian authority rejected the refund application because the invoices did not meet all the formal requirements of an invoice.  Wilo Salmson did not appeal this decision.  In 2015, the issuer cancelled the incorrect invoices and reissued them. Wilo Salmson claimed input VAT for the new invoices in an input VAT refund claim for 2015. This refund claim was also rejected - with the argument that Wilo Salmson had already claimed that particular input VAT in 2012. After an unsuccessful appeal, Wilo Salmson brought an action and the Romanian court referred the case to the ECJ for a preliminary ruling.

Is possession of an invoice a prerequisite for deducting the input VAT?

The referring court assumed that Wilo Salmson did not have a (valid) invoice in 2012 and therefore asked whether possession of an invoice was a prerequisite for deducting the input VAT.  If that were the case, Wilo Salmson should have been granted the input VAT deduction in 2015, according to the court, as only then did it have a (valid) invoice. Otherwise, 2012 would be the correct refund period - however, the refusal sent to Wilo Salmson back then has become final.

The Advocate General viewed the Wilo Salmson case as providing the ECJ with the opportunity to (finally) clarify one of the most important VAT law questions, namely, whether possessing the invoice was a prerequisite.  The ECJ had caused a stir with its decision in the Vădan case (C-664/16 of November 21, 2018), in which it held that the strict application of the formal requirement to submit invoices was contrary to the principles of neutrality and proportionality. Whether this indicates that an invoice was dispensable was subsequently the subject of heated debate.

Input VAT must be claimed as soon as an invoice is available, even if it contains immaterial errors

However, unlike the referring court, the ECJ does not simply assume that Wilo Salmson did not yet possess a (valid) invoice in 2012.  The critical question is why the invoice is considered invalid, as the ECJ recalled its earlier case law. The input VAT deduction can only be denied if formal shortcomings prevent there being reliable proof that the material requirements were met. Specifically, this means that the authority can only deny the input VAT deduction if a document is so defective that the authority lacks the information necessary to substantiate the refund claim and therefore the document is not an "invoice" as defined by the EU VAT Directive. That is for the referring court to determine.  If the original invoices contained all the essential information, any non-essential information can be added with retroactive effect. This means that - even in such cases - the input VAT must be claimed in the taxation period in which the original invoice was issued.

The ECJ answered the question of whether an invoice is necessary by stating: Yes, it generally is, and referencing the wording of Art. 178 a) of the EU VAT Directive. This Directive stipulates that possession of an invoice is a prerequisite for exercising the right to deduct input VAT. In clarification, it reiterates its established case law which dictates that the principle of neutrality requires that the input VAT deduction be granted despite formal deficiencies if the substantive requirements are met.

The ECJ also clarifies that the input VAT deduction must be claimed in the taxation period in which both conditions are cumulatively met for the first time, namely, that the VAT is owed and there’s an invoice containing the essential information.

Reissuing the invoice doesn’t excuse a missed deadline.

Of particular interest are the ECJ's comments on the effects of cancelling and reissuing an invoice and the question of whether cancellation can cause the right to deduct input VAT to lapse once it has arisen.  If this were the case, taxpayers who missed the cut-off date of September 30 of the following year could ask the invoice issuer to reissue the invoice and then claim the input VAT in the later taxation period that had not yet expired.   The ECJ rejects this and emphasises that it would be contrary to the principle of legal certainty if the input VAT deduction could be claimed in this way without any time limit.

Practical challenge: Check invoice requirements carefully

In the "Terra Baubedarf-Handel" case (C-152/02 of April 29, 2004), the ECJ had already ruled that the right to deduct input VAT must be exercised in the taxation period in which both the supply was rendered and the invoice was available.  The ECJ ruled in the "Senatex" case (C-518/14 of September 15, 2016), that an invoice correction can have a retroactive effect that can be either an advantage or disadvantage to the taxpayer if the original invoice contained at least the essential information. For Germany, the BFH had specified that this was at least the case if the invoice contained information detailing the issuer, the recipientof the supply, a description of the supply, the remuneration, and showed the VAT separately.

The present ruling makes clear how important it is that the recipients carefully examine the invoice requirements. It is not enough to recognise that an invoice is faulty; one must also correctly assess how faulty it is. This subtle difference may yet prove to be Wilo Salmson's undoing in the present case:  If the Bulgarian court were to find that only immaterial information was missing, Wilo Salmson would have had to challenge the rejection of the 2012 refund claim.  Since the rejection is final and the input VAT cannot be claimed for 2015 in this case, the input VAT would be permanently lost.

Although the referring court still has to examine whether the 2012 invoice contained the essential information, the ECJ seems to assume that it does.  Doing so lets it avoid dealing with the question of whether an input VAT deduction was also possible without an invoice and could limit its response to the reference to Article 178 a) VAT Directive. So, the long-sought clarification with regard to this question is still missing. Taxable persons are urgently advised to ensure that they receive an invoice so that they can deduct the input VAT.

(Dated: November 04, 2021)