Excess VAT invoiced: do you have to credit the invoice and reimburse the customer?

Businesses may overcharge VAT. In most cases, a credit note is issued and the excess VAT is refunded to the customer. But what if that customer is a private individual and the price includes VAT? Do the same principles apply? 
Advocate General Kokott addressed this question and came with very interesting conclusions in this regard. 
The Court of Justice will soon be able to deal with this question. The Advocate General already came up with interesting conclusions. This case may have a far-reaching impact on existing practices as regards VAT corrections in several EU Member States.


According to article 203 of the VAT Directive, VAT is payable by anyone who mentions this tax on an invoice. This provision has been introduced to prevent the recipient of an invoice from using this invoice to claim VAT deduction in a context where no tax liability is being settled.

In other words: the aim of the legislator was to prevent a customer, in possession of an invoice, to claim VAT deduction; while the person issuing the invoice would not be liable for this VAT (due to lack of legal basis). The state would otherwise be in danger of losing tax revenues.

According to Advocate General Kokott, there is no such danger if the recipient of the invoice is not entitled to deduct VAT. In such case, it would even be possible to reclaim the excess amount of VAT paid, without correction of the invoices.

Case C-378/21

The case at hand concerned an Austrian operator (P GmbH) of an indoor playground, who had incorrectly applied the standard VAT rate. Whenever a customer paid the entrance fee, P GmbH issued a “simplified invoice” with 20% VAT. P GmbH also paid the VAT to the tax authorities.

Since the entrance fees to the indoor playground were subject to the reduced VAT rate of 13%, P GmbH requested a refund of the excess VAT paid. The Austrian tax authorities refused this request. The case eventually is referred to the Court of Justice, which is requested to deal with several preliminary questions.

Is incorrectly invoiced VAT due when there is no risk of loss of tax revenue because the buyers are not entitled to deduct?

The Advocate General argues that the fact that VAT was charged incorrectly on invoiced to a private individual does not mean that the supplier has to pay VAT merely because it is stated on an invoice.

After all, in such a case there is no risk of loss of tax revenue for the Treasury (meaning: the customer cannot use the invoice to assert a right to deduct). According to the Advocate General, a tax liability under Article 203 of the VAT Directive only arises to the extent that there are also taxable persons among the recipients of the invoices. If there are taxable recipients among the recipients; it is necessary, where appropriate, to estimate how many invoices are exposed, i.e., “risky invoices”.

In the case of P GmbH, the likelihood that there were actual taxable customers was relatively limited and this risk can therefore be estimated as 'very low'.

Is there no need to correct the invoices if there is no risk of loss of tax revenue and the correction proves to be unfeasible from a practical point of view?

Member States are, in principle, obliged to repay taxes collected in violation of EU law. The Court of Justice has repeatedly confirmed that the VAT Directive does not contain any provisions relating to the adjustment of invoices. In those circumstances, it is in principle up to the Member States to determine the conditions under which the incorrectly invoiced VAT can be adjusted.

However, these measures should not affect the neutrality of VAT. Taxable persons who act in good faith or who have eliminated the risk of loss of tax revenue in a timely manner must be able to exercise their right to a refund.

According to the Advocate General when assessing good faith of a taxable person, account must be given to the complexity of the VAT legislation. As tax collectors, taxable persons cannot simply be held liable for every possible mistake they make. And even if the good faith is being questioned, the taxable person must be able to reclaim the excess VAT charged if the risk of loss of tax revenue is timely eliminated.

It is settled case law that Member States must respect this principle. Moreover, when setting the conditions for VAT refund requests, Member States should not set the conditions in such a way as to make the exercise of this right impossible or excessively difficult in practice.

In a case of P GmbH, the question is whether there is a risk of loss of tax revenue at all and whether it must therefore correct the invoices concerned (in case bad faith would be assumed). This question does not seem to have been clarified yet. If there is a risk of loss of tax revenue and the taxable person acts in bad faith, the invoices must be corrected, says the Advocate General. The fact that a correction turns out to be practically unfeasible, for example because of the number of invoices, does not change this conclusion.

Quid unjust enrichment?

The referring court also asks whether the VAT which is claimed back should not be refunded to the customer. Is there otherwise no unjust enrichment? After all, EU law permits a national legal system to disallow repayment of charges which have been levied but were not due, where such repayment would lead to unjust enrichment of the recipient.

The Advocate General noted that it is up to the national court - considering all relevant circumstances - to make an analysis and determine whether the supplier would be unjustly enriched. In this regard, the burden of proof for the existence of unjust enrichment lays with the Member State in question. In this case the Advocate General does not appear to see an immediate danger of unjust enrichment. On the contrary, unjust enrichment should be ruled out in the case where a fixed amount is agreed vis-à-vis a final consume”. In other words, when a taxable person transacts with a private individual, he can thus almost not be unlawfully enriched. Either the supplier will increase his price by charging a higher rate and thus is faced with a competitive disadvantage. Or the supplier chooses not the increase the price, at the expense of his profit margin. In such a case, the tax authorities cannot demand – as a condition for the VAT refund – that the unduly collected VAT should be repaid to the customer.


This case brings further nuance to the statement that unlawfully invoiced VAT is always due.

In addition, it appears that the doctrine of unjust enrichment is probably too often invoked against taxable persons. It is certainly striking how the Advocate General defines the role of the taxable person in the VAT chain and does not want the latter to bear each mistake financially.

If a taxable person makes an unintentional mistake in collecting excess tax, because the VAT rules are too complex, it is primarily a problem for the authorities – not so much for the taxable person in question.

In addition, taxable persons must not fall victim to their role as tax collectors: if they experience an economic disadvantage, there can be no question of unjust enrichment.

Or how this conclusion can be enriching for taxpayers in times when the tax authorities are looking for additional income…

It is still a while for the final verdict, which can be expected within a 6 month period. If the court follows the opinion, which it often does, this case represents an opportunity for every B2C supplier that has paid too much VAT.