T-689/24 Dyrektor Krajowej Informacji Skarbowej
Prejudicial court case
See Appendix for the referral ruling, and click here for the Court of Justice file (where available).
Deadline to leave your Amicus Curiae brief: March 30, 2025
Keywords: VAT deduction
Subject: Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax: Articles 167, 168(a) and 178(a).
Facts:
The applicant is ‘I.S.A.’, it operates a ‘clearinghouse’ whereby it is engaged in the settlement of transactions between its members related to purchases of gas and electricity. I.S.A. asked the tax authorities for an individual interpretation regarding VAT in respect of its right to deduct the payment arising from the invoices for the purchase of electricity and gas because, at the time of the tax return for the tax periods, it had not yet received the purchase invoices. She did not receive the invoices until the next tax period, but before filing the tax return (of the previous period). The tax authorities rejected her claim because, due to the absence of the invoices, all formal requirements for the right of deduction were not met.
Recital:
The referring court wishes to know whether Articles 167, 168(a) and 178(a) of Directive 2006/112 preclude the interpretation of national law, according to which taxable persons are denied the possibility of deducting input VAT when settling a tax period during which the right to deduct a deduction arose, if the conditions for exercising the right are not met until after the period. Indeed, according to the Court’s case law, the deduction of input tax may be allowed if the material conditions are met, even if the taxpayer does not meet certain formal conditions.
Question referred:
Are Articles 167, 168(a) and 178(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) and the principles of fiscal neutrality, effectiveness and proportionality to be interpreted as precluding a national provision, such as Article 86(10b)(1) of the Law on VAT, according to which a taxable person may not exercise the right to deduct input VAT when submitting a return for a period in which he has satisfied the material conditions for that right if he had not yet received the invoice in that period, although he received it before submitting that return?
Cited (recent) case law: C-152/02 Terra Baubedarf-Handel; C-895/19 A; C-81/17 Zabrus Siret; C-518/14 Senatex.
Specific policy area: FIN fiscal
Diagram of the case
The arguments in favor of the taxpayer
1. Substance over form principle – The CJEU consistently holds that VAT deduction is a fundamental right that cannot be limited where material conditions are met, even if certain formal requirements are not fulfilled (Terra Baubedarf-Handel, C-152/02). Here, I.S.A. met all material conditions for deduction within the relevant tax period.
2. Principle of neutrality – Denying deduction solely due to timing of invoice receipt, despite having it before filing the return, violates VAT neutrality. The taxpayer would bear the economic burden of VAT contrary to the system’s design (Senatex, C-518/14). This administrative requirement imposes a disproportionate restriction on deduction rights.
3. Effectiveness doctrine – National rules cannot make it excessively difficult to exercise EU law rights (Ecotrade, C-95/07, C-96/07). Requiring invoice possession during the tax period, rather than by filing time, creates an unnecessary obstacle that undermines the effectiveness of the right to deduct established in Articles 167 and 168.
Since I.S.A. held the invoices before filing and satisfied all material conditions, preventing deduction would prioritize form over substance and contradict established CJEU jurisprudence on VAT deduction rights.
The arguments in favor of the tax authority
The Court should uphold the tax authority’s decision based on three key principles:
1. Temporal Application of Article 167
Article 167 clearly states that the right to deduct VAT arises when the deductible tax becomes chargeable. The Court has consistently held that both material and formal conditions must be satisfied within the same tax period. Allowing deduction before receipt of invoices would undermine the systematic nature of VAT collection and verification.
2. Documentary Requirements Under Article 178(a)
The invoice requirement in Article 178(a) serves as a fundamental control mechanism to prevent tax fraud. The Court’s jurisprudence in Barlis 06 (C-516/14) emphasizes that while formal requirements may be flexible, basic documentary evidence must exist within the relevant tax period. Possession of an invoice is not merely procedural but essential for the proper functioning of the VAT system.
3. Member State Discretion
The principle established in Senatex (C-518/14) confirms that Member States retain discretion in establishing procedural rules for VAT deduction. The national provision requiring invoice possession during the tax period serves legitimate aims of fiscal supervision and falls within acceptable limitations of the effectiveness principle.
Supporting case law:
– Volkswagen (C-533/16) affirming temporal requirements
– Idexx (C-590/13) on documentary evidence
– Astone (C-332/15) on Member State procedural autonomy
The principles of fiscal neutrality and proportionality are not violated as the taxpayer retains the right to deduct VAT in subsequent periods, merely adjusting the timing rather than denying the right entirely.
Conflicting considerations at stake
The case presents a conflict between formal and substantive requirements for VAT deduction under EU law. Here are the key perspectives:
Tax Authorities’ Position:
– Deduction cannot be claimed without possessing invoices during the tax period
– Article 178(a) of Directive 2006/112 requires invoice possession as a formal condition
– Temporal alignment between tax period and documentary requirements must be maintained
Taxpayer’s Position:
– Material conditions for deduction (actual supply, VAT payment) were met
– Invoices were received before filing the return
– CJEU jurisprudence prioritizes substance over form (Terra Baubedarf-Handel, C-152/02)
Legal Principles at Stake:
1. Fiscal Neutrality: VAT system should not burden compliant businesses
2. Effectiveness: National rules cannot make EU rights impossible to exercise
3. Proportionality: Formal requirements cannot exceed what’s necessary
Relevant CJEU Precedents:
– Senatex (C-518/14): Right to deduct exists from when tax becomes chargeable
– Barlis 06 (C-516/14): Formal defects don’t preclude deduction if material conditions met
– Idexx (C-590/13): Member States cannot refuse deduction solely on formal grounds
The case turns on balancing Member States’ right to impose formal requirements against the fundamental principle of immediate VAT deduction when material conditions are satisfied.