CJEU confirms that input VAT may be deducted even for purchases made in a period already subject to tax inspection

20/06/18

In brief

The Court of Justice of the EU (“Court”) recently issued its ruling in case C-81/17 Zabrus Siret SRL, stating that input VAT may be deducted for purchases made in a period already subject to a tax inspection.

In detail

Zabrus Siret SRL is a Romanian company subject to a VAT inspection for the period May 2014 - November 2014 resulting in the issuance of a VAT inspection report in January 2015.

In May 2015, the Company requested VAT reimbursement for:

(i)  an amount resulting from a correction performed in relation to the VAT return for July 2014; and

(ii) (ii) a second amount resulting from adjustments performed in February 2015 for transactions related to 2014, for which the company did not have the relevant supporting documents for VAT deduction purposes available until after the tax inspection.

The Company was subject to a second tax inspection for the period December 2014 - April 2015, with the resulting report issued in July 2015. The tax inspectors found that the VAT requested for reimbursement resulted from, amongst other items, purchases made in 2014. As the Company had already been subject to a tax inspection for that period and its right to deduct the related input VAT rejected, the tax inspectors argued that, once inspected, operations could not be subject to another inspection.

The Court decided that, as long as the right to deduct input VAT is exercised within the statute of limitation period, it cannot be rejected simply because the input VAT to be deducted relates to a period which has already been subject to a tax inspection. According to the Court, for VAT purposes, such a Romanian principle cannot be invoked for refusing input VAT deduction right, since it is in place only for the effectiveness of tax inspections and for the proper functioning of the national administration. A contrary conclusion would be unfair, since such corrections can only be made only based on decisions issued by the tax authority or following re-inspections.

[Source: Judgment of the Court of Justice of the European Union in Case C-81/17 Zabrus Siret SRL v Directorate General of Public Finance Iasi - County Administration of Public Finance Suceava, published on the Curia.europa.eu website on 26 April 2018]

The takeaway

The decision emphasises that a taxable person's right to deduct input VAT related to purchases made in a period subject to a previous tax inspection can be exercised after the inspection, by deducting that input VAT via any future VAT return, if:

  • the five-year statute of limitation period has not expired;
  • no fraud is proven; and
  • the state budget is not negatively affected.

The judgment applies not only to situations concerning the right to deduct input VAT being exercised, but to any case in which input / output VAT can be adjusted within the statute of limitation period following the period for which that VAT was inspected. 

 

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