CJEU: a contract after which the parties have not issued an invoice can be considered as an invoice

What the case concerned

The subject of the ruling by the Court of Justice of the European Union (hereinafter: ‘CJEU’) was a response to a request for a preliminary ruling from a Slovenian administrative court as to ‘whether a written agreement may be regarded as an invoice within the meaning of Article 203 of Directive [2006/112] only if it contains all the information required for an invoice in accordance with Chapter 3 (‘Invoicing’) ”.

What did the CJEU rule in the case?

The CJEU ruled that a written sale and leaseback agreement constitutes an invoice within the meaning of the VAT Directive and, consequently, in the absence of a previously issued invoice, entitles the recipient to deduct VAT.

The starting point in the CJEU’s reasoning was that the principle of VAT neutrality requires that the right to deduct input VAT be granted where the substantive conditions are met, even if taxpayers have not fulfilled certain formal requirements. On this basis, provided that the tax authorities possess the information necessary to establish that the substantive conditions are met, they may not impose additional conditions on the taxpayer’s right to deduct VAT which could, in effect, render the exercise of that right practically impossible (for example, the judgment of 15 September 2016 in Barlis 06 – Investimentos Imobiliários e Turísticos (C‑516/14)).

In other words, the CJEU has indicated that tax authorities may not deny the right to deduct VAT solely on the ground that the invoice documenting the transactions does not meet the requirements laid down in the VAT Directive, if those authorities have at their disposal all the information necessary to verify that the substantive conditions for VAT deduction are met.

At the same time, the CJEU, referring to Article 203 of the VAT Directive (“any person who shows VAT on an invoice is liable to pay VAT”), pointed out that the aim of the regulation is to eliminate the risk of a shortfall in tax revenue. However, this risk can be avoided if the tax authority has the information necessary to determine whether the substantive conditions for the right to deduct VAT have been met. At the same time, the CJEU emphasised that this objective can be achieved “regardless of whether the VAT is indicated in a document bearing the title ‘Invoice’ or in another document, such as a contract concluded between the parties”.

In view of the above, the CJEU held that, for a document to be regarded as an invoice within the meaning of Article 203 of the VAT Directive, firstly, it must show VAT, and secondly, it must contain the information referred to in the provisions entitled ‘Information to be included in invoices’ in Section 4 of Chapter 3 of Title XI of that Directive, which is necessary to enable the tax authority to determine whether the substantive conditions for the right to deduct VAT have been met. However, it is irrelevant in this regard that the document is a contract, since it objectively reflects the intention of the parties to that contract that it should be an invoice capable of giving the customer the impression that he will be able to deduct the input VAT on the basis of that contract.

In summary, the CJEU ruled that ‘Article 203 of Directive 2006/112 must be interpreted as meaning that a sale and leaseback agreement, following the conclusion of which the parties did not issue an invoice, may be regarded as an invoice within the meaning of that provision where that contract contains all the information necessary to enable the tax authority of a Member State to determine whether the substantive conditions for the right to deduct VAT have been met in the particular case, which is a matter for the referring court to examine”.

Will the CJEU judgment lead to documentation chaos?

There is concern that this CJEU judgment will cause considerable confusion regarding the documentation of transactions. Strictly adhering to the CJEU’s guidance set out in the grounds, if a contract concluded between contracting parties includes VAT and the details listed in Article 226 of the VAT Directive (including the document number, VAT rate, date of supply, etc.), such a contract alone may be regarded as an invoice. This raises the question of how to treat an invoice issued for such a contract, and in particular whether it will be a blank invoice, which exposes the issuer to, amongst other things, the risk of criminal and fiscal liability. The CJEU judgment therefore certainly requires interpretation by the Ministry of Finance, in particular through the issuance of a general interpretation that will dispel any doubts regarding the correct documentation of transactions.

Author

Mateusz Kowalski

Radca prawny, Senior Associate

I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.

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