Germany : Refusal to Deduct Input Tax after Correction to Invoice Contravenes EU Law
In the Senatex decision of 15.09.2016 the CJEU objected to the lack of ex tunc effect of the correction to an invoice for purposes of input tax under German law, thus allowing an ex tunc effect of corrections to invoices for purposes of input tax.
Even if an invoice contains an error which is allegedly only insignificant German tax authorities refused to allow the input tax deduction – this was also the case in the case underlying the decision of the CJEU where the VAT ID number had not been provided. If input tax had already been reclaimed from such invoices and the error was ascertained at a later date the taxpayer had to pay back the input tax under German law. Even if a corrected invoice was submitted the taxpayer was only entitled to an input tax deduction in the taxation period in which he received this correction. Both German case law and the tax authorities denied any ex tunc effect of such correction. This resulted in a considerable economic burden for the taxpayer concerned, due to the fact that the input tax bore interest of 6% per annum.
In its decision the CJEU issued a welcome contradiction to this German understanding of the effect of corrections to invoices. In its decision it confirms the ex tunc effect of corrections to invoices. Thus, the input tax deduction after correction is to be allowed for the taxation period in which the input tax deduction is claimed on the basis of the (originally wrong) invoice. Therefore, on correction of the invoice the input tax is not subject to interest charged to the taxpayer. Whether this will now apply in Germany to all types of corrected errors in invoices and, if so, to what extent procedural law limits to the correction are to be complied with, will probably continue to be the subject of controversy in Germany.
In a positive light, the fact remains that the economic risk arising from invoices containing errors will be considerably reduced. However, this only applies in as far as an invoice can be corrected. Furthermore, a careful review of the invoices received and the immediate correction of errors recognised is still to be recommended.
In the specific case, taxpayers affected should check whether interest already paid can be reimbursed on the basis of the CJEU decision or whether interest assessed against the company is justified in the light of the CJEU decision. In this respect it is essential to file appeals against the interest assessments in contravention of the EU law, bearing deadlines in mind.