In its judgment of 25 February 2026 (T-638/24, Finanzamt Österreich/D GmbH), the General Court brings these two worlds together. The invoice showed domestic VAT for a supply that was substantively an exempt intra-Community supply, while the customer used the VAT number of the Member State of departure and could not prove that VAT had been levied in the Member State of arrival. The Member State of departure therefore taxed the intra-Community acquisition and, at the same time, maintained the VAT liability arising exclusively from the incorrect invoicing.
The intra-Community VAT system operates through a mirror mechanism. The supply in the Member State of departure is exempt as an intra-Community supply, provided the substantive and formal conditions are met (Article 138 VAT Directive). The acquisition is taxed in the Member State where the transport ends, which is the main rule governing the place of acquisition (Article 40 VAT Directive). This system ensures that cross-border transactions within the Union are neither taxed twice nor left untaxed.
Article 41 temporarily departs from that main rule when the customer carries out the purchase under a VAT number issued by a Member State other than the Member State of arrival. In that case, the place of the intra-Community acquisition is deemed to be in the Member State that issued the VAT number used, unless the customer demonstrates that the acquisition has in fact been taxed in the Member State of arrival (Article 41, first paragraph). The rationale is clear: to prevent an intra-Community acquisition from “disappearing” between two Member States and being taxed nowhere.
Article 203 plays a fundamentally different role. Any person who shows VAT on an invoice is, in principle, liable to pay that VAT, even where the underlying transaction is substantively not taxable. This provision aims to prevent VAT incorrectly charged from leading, through deduction, to a loss of tax revenue. It creates an autonomous VAT debt independent of the substantive qualification of the supply and neutralises the risk that incorrectly invoiced VAT undermines the system.
Facts
D GmbH, established in Austria, purchased goods from Austrian suppliers. The goods were transported from Austria to other Member States. For the purchase, D used its Austrian VAT number. The suppliers invoiced Austrian VAT.
The Austrian tax authorities did not accept that position. In their view, the supplies in question were substantively exempt intra-Community supplies (Article 138 VAT Directive). Because Austrian VAT nevertheless appeared on the invoices, the suppliers were liable for that VAT under Article 203 VAT Directive.
In addition, the authorities found that D had not shown that the intra-Community acquisitions had been taxed in the Member State of arrival. Since D had used its Austrian VAT number, Austria could tax the acquisitions via the safety net of Article 41 VAT Directive. The deduction of the incorrectly invoiced VAT was denied.
As a result, a double VAT burden arose in one and the same Member State. On the one hand, there was a VAT debt for the supplier under Article 203, solely because VAT was shown on the invoice. On the other hand, there was VAT due from the customer under Article 41, because taxation in the Member State of arrival was not demonstrated. That tension lay at the heart of the dispute ultimately brought before the General Court.
Questions referred
The dispute was referred to the General Court. The referring court asked whether Articles 40, 41 and 203 VAT Directive, read in the light of the principles of neutrality and proportionality, preclude a national rule applying Article 41 where the supply is substantively exempt, while in the same Member State a VAT debt arises under Article 203 due to incorrect invoicing.
In other words, can a Member State both tax the intra-Community acquisition via the safety net and maintain a VAT debt that arises solely from the mention of VAT on the invoice.
A further question was whether, if such accumulation were not permissible, a later correction of the invoice affects the moment at which the intra-Community acquisition is deemed to take place.
Reasoning of the General Court
Two distinct mechanisms within one system
The General Court begins with a systematic reading of the VAT Directive. It stresses that the rules on the place of an intra-Community acquisition (Articles 40 and 41 VAT Directive) and the regime under which VAT becomes payable because it is shown on an invoice (Article 203 VAT Directive) each have their own conditions for application and their own objectives.
The place-of-supply rules for intra-Community acquisitions serve a clear function: ensuring that an acquisition is taxed in at least one Member State. Where the customer uses a VAT number that does not belong to the Member State where transport ends, the Member State that issued the VAT number used may tax the acquisition until it is demonstrated that VAT has been levied in the Member State of arrival (Article 41). The General Court recalls that this mechanism is designed to avoid non-taxation and, at the same time, to prevent double taxation of the same acquisition.
Article 203 has a different rationale. Where VAT is shown on an invoice, a VAT debt arises in order to exclude the risk that the recipient will deduct VAT even though there is no substantively taxable transaction. The General Court reiterates its settled case law that this debt arises independently of whether the underlying supply is in fact taxable.
From that system perspective, the General Court concludes that both provisions have autonomous scope. The fact that domestic VAT is payable in the Member State of departure because of incorrect invoicing does not, in itself, prevent that same Member State from taxing the intra-Community acquisition under Article 41, provided the conditions for Article 41 are met.
Positioning against earlier case law
The General Court expressly places the case alongside its judgment of 7 July 2022, Dyrektor Izby Skarbowej w W. (C-696/20). In that judgment, the Court held that applying the safety net can be problematic where the supply in the Member State of departure is definitively treated as a taxable, non-exempt supply. In that situation there was substantive VAT charged on the supply itself. An additional application of Article 41 could then result in an extra tax burden that did not align with the system’s objectives and the principle of neutrality.
In the present case, the situation is fundamentally different. The supply remains substantively exempt as an intra-Community supply. The VAT payable in the Member State of departure does not flow from a substantive taxation of the supply, but solely from the mention of VAT on the invoice under Article 203.
The General Court underlines that a debt under Article 203 cannot be equated with substantive taxation of the supply itself. For that reason, the reasoning in C-696/20 cannot be transposed one-to-one. The economic effect may feel similar, but legally the situations differ.
Neutrality and proportionality
The natural question is what this means for neutrality and proportionality. Can one Member State levy VAT twice on goods that have, substantively, been transported to another Member State. In this case, Austria established both a supplier VAT debt under Article 203 and a customer acquisition VAT debt under Article 41, while the goods were dispatched to Germany.
The General Court accepts that VAT payable solely because it is shown on an invoice is, in principle, not deductible. The right to deduct presupposes that VAT is due on a genuinely taxable transaction. A mere invoice mention is not sufficient.
Even so, the General Court finds no breach of neutrality or proportionality. A decisive point is a very specific feature of Austrian law: incorrectly invoiced VAT can be corrected via invoice correction, even where the limitation period for the invoice year has already expired. In other words, the Article 203 VAT debt remains, in principle, revisable and can be rectified once the risk of a loss of tax revenue has been eliminated.
According to the General Court, neutrality does not require that a taxable person is never temporarily confronted with a double cash impact. What the principle requires is that the taxable person does not definitively bear VAT that is not due when the system provides a real and effective possibility of correction and refund. That element made the difference in this case.
This also shows the sensitivity of the judgment. Not every Member State offers an equally broad correction mechanism. Where invoice corrections are strictly time-barred or refunds are difficult to achieve in practice, the neutrality balance may come under greater pressure.
Outcome of the ruling
The VAT Directive does not preclude a national rule under which:
The combination is legally possible because it concerns two autonomous mechanisms with different objectives.
Commentary
This judgment deals with two basic mistakes that, in practice, often occur together. First, the wrong VAT number is used in a cross-border goods flow, often the departure state number that sits by default in the ERP system or on the purchase order. Second, the supplier charges domestic VAT on a supply that is substantively an exempt intra-Community supply.
The result feels like a “double dip”: a VAT debt for the supplier due to the incorrect invoice, and at the same time acquisition VAT for the customer via the safety net. The General Court accepts that combination because the Article 203 debt does not change the substantive classification of the supply.
For practice, the message is clear: ensure the correct VAT number is used when goods are dispatched cross-border, be able to evidence that VAT has been properly accounted for in the Member State of arrival, and remediate immediately when invoice errors are spotted so that the position is regularised quickly and does not lead to an accumulation of VAT liabilities.
This feels like double taxation in one and the same Member State. The General Court nevertheless confirms that such a combination is legally possible. VAT arising solely from its mention on an invoice cannot be equated with a substantive VAT charge on the supply itself. Legally, the situation reflects the accumulation of two autonomous mechanisms: the safety net for intra-Community acquisitions (Article 41 VAT Directive) and the VAT debt arising from the mention of VAT on an invoice (Article 203 VAT Directive).
It is a striking outcome, and one that deserves closer analysis.
Background
The intra-Community VAT system operates through a mirror mechanism. The supply in the Member State of departure is exempt as an intra-Community supply, provided the substantive and formal conditions are met (Article 138 VAT Directive). The acquisition is taxed in the Member State where the transport ends, which is the main rule governing the place of acquisition (Article 40 VAT Directive). This system ensures that cross-border transactions within the Union are neither taxed twice nor left untaxed.
Article 41 temporarily departs from that main rule when the customer carries out the purchase under a VAT number issued by a Member State other than the Member State of arrival. In that case, the place of the intra-Community acquisition is deemed to be in the Member State that issued the VAT number used, unless the customer demonstrates that the acquisition has in fact been taxed in the Member State of arrival (Article 41, first paragraph). The rationale is clear: to prevent an intra-Community acquisition from “disappearing” between two Member States and being taxed nowhere.
Article 203 plays a fundamentally different role. Any person who shows VAT on an invoice is, in principle, liable to pay that VAT, even where the underlying transaction is substantively not taxable. This provision aims to prevent VAT incorrectly charged from leading, through deduction, to a loss of tax revenue. It creates an autonomous VAT debt independent of the substantive qualification of the supply and neutralises the risk that incorrectly invoiced VAT undermines the system.
Facts
D GmbH, established in Austria, purchased goods from Austrian suppliers. The goods were transported from Austria to other Member States. For the purchase, D used its Austrian VAT number. The suppliers invoiced Austrian VAT.
In its VAT returns, D argued that the Austrian VAT charged was deductible and that no intra-Community acquisition taxable in Austria had taken place.
The Austrian tax authorities did not accept that position. In their view, the supplies in question were substantively exempt intra-Community supplies (Article 138 VAT Directive). Because Austrian VAT nevertheless appeared on the invoices, the suppliers were liable for that VAT under Article 203 VAT Directive.
In addition, the authorities found that D had not shown that the intra-Community acquisitions had been taxed in the Member State of arrival. Since D had used its Austrian VAT number, Austria could tax the acquisitions via the safety net of Article 41 VAT Directive. The deduction of the incorrectly invoiced VAT was denied.
As a result, a double VAT burden arose in one and the same Member State. On the one hand, there was a VAT debt for the supplier under Article 203, solely because VAT was shown on the invoice. On the other hand, there was VAT due from the customer under Article 41, because taxation in the Member State of arrival was not demonstrated. That tension lay at the heart of the dispute ultimately brought before the General Court.
Questions referred
The dispute was referred to the General Court. The referring court asked whether Articles 40, 41 and 203 VAT Directive, read in the light of the principles of neutrality and proportionality, preclude a national rule applying Article 41 where the supply is substantively exempt, while in the same Member State a VAT debt arises under Article 203 due to incorrect invoicing.
In other words, can a Member State both tax the intra-Community acquisition via the safety net and maintain a VAT debt that arises solely from the mention of VAT on the invoice.
A further question was whether, if such accumulation were not permissible, a later correction of the invoice affects the moment at which the intra-Community acquisition is deemed to take place.
The General Court answered the first question in the negative. The VAT Directive does not preclude such accumulation of Articles 41 and 203. In light of that answer, the General Court considered it unnecessary to address the second question.
Reasoning of the General Court
Two distinct mechanisms within one system
The General Court begins with a systematic reading of the VAT Directive. It stresses that the rules on the place of an intra-Community acquisition (Articles 40 and 41 VAT Directive) and the regime under which VAT becomes payable because it is shown on an invoice (Article 203 VAT Directive) each have their own conditions for application and their own objectives.
The place-of-supply rules for intra-Community acquisitions serve a clear function: ensuring that an acquisition is taxed in at least one Member State. Where the customer uses a VAT number that does not belong to the Member State where transport ends, the Member State that issued the VAT number used may tax the acquisition until it is demonstrated that VAT has been levied in the Member State of arrival (Article 41). The General Court recalls that this mechanism is designed to avoid non-taxation and, at the same time, to prevent double taxation of the same acquisition.
Article 203 has a different rationale. Where VAT is shown on an invoice, a VAT debt arises in order to exclude the risk that the recipient will deduct VAT even though there is no substantively taxable transaction. The General Court reiterates its settled case law that this debt arises independently of whether the underlying supply is in fact taxable.
From that system perspective, the General Court concludes that both provisions have autonomous scope. The fact that domestic VAT is payable in the Member State of departure because of incorrect invoicing does not, in itself, prevent that same Member State from taxing the intra-Community acquisition under Article 41, provided the conditions for Article 41 are met.
Positioning against earlier case law
The General Court expressly places the case alongside its judgment of 7 July 2022, Dyrektor Izby Skarbowej w W. (C-696/20). In that judgment, the Court held that applying the safety net can be problematic where the supply in the Member State of departure is definitively treated as a taxable, non-exempt supply. In that situation there was substantive VAT charged on the supply itself. An additional application of Article 41 could then result in an extra tax burden that did not align with the system’s objectives and the principle of neutrality.
In the present case, the situation is fundamentally different. The supply remains substantively exempt as an intra-Community supply. The VAT payable in the Member State of departure does not flow from a substantive taxation of the supply, but solely from the mention of VAT on the invoice under Article 203.
The General Court underlines that a debt under Article 203 cannot be equated with substantive taxation of the supply itself. For that reason, the reasoning in C-696/20 cannot be transposed one-to-one. The economic effect may feel similar, but legally the situations differ.
Neutrality and proportionality
The natural question is what this means for neutrality and proportionality. Can one Member State levy VAT twice on goods that have, substantively, been transported to another Member State. In this case, Austria established both a supplier VAT debt under Article 203 and a customer acquisition VAT debt under Article 41, while the goods were dispatched to Germany.
The General Court accepts that VAT payable solely because it is shown on an invoice is, in principle, not deductible. The right to deduct presupposes that VAT is due on a genuinely taxable transaction. A mere invoice mention is not sufficient.
Even so, the General Court finds no breach of neutrality or proportionality. A decisive point is a very specific feature of Austrian law: incorrectly invoiced VAT can be corrected via invoice correction, even where the limitation period for the invoice year has already expired. In other words, the Article 203 VAT debt remains, in principle, revisable and can be rectified once the risk of a loss of tax revenue has been eliminated.
According to the General Court, neutrality does not require that a taxable person is never temporarily confronted with a double cash impact. What the principle requires is that the taxable person does not definitively bear VAT that is not due when the system provides a real and effective possibility of correction and refund. That element made the difference in this case.
This also shows the sensitivity of the judgment. Not every Member State offers an equally broad correction mechanism. Where invoice corrections are strictly time-barred or refunds are difficult to achieve in practice, the neutrality balance may come under greater pressure.
Outcome of the ruling
The VAT Directive does not preclude a national rule under which:
• an intra-Community acquisition is taxed in the Member State that issued the VAT number used (Article 41), until it is demonstrated that VAT has been levied in the Member State of arrival, and
• in that same Member State, VAT is payable due to incorrect invoicing of a substantively exempt intra-Community supply (Article 203).
The combination is legally possible because it concerns two autonomous mechanisms with different objectives.
Commentary
This judgment deals with two basic mistakes that, in practice, often occur together. First, the wrong VAT number is used in a cross-border goods flow, often the departure state number that sits by default in the ERP system or on the purchase order. Second, the supplier charges domestic VAT on a supply that is substantively an exempt intra-Community supply.
The result feels like a “double dip”: a VAT debt for the supplier due to the incorrect invoice, and at the same time acquisition VAT for the customer via the safety net. The General Court accepts that combination because the Article 203 debt does not change the substantive classification of the supply.
For practice, the message is clear: ensure the correct VAT number is used when goods are dispatched cross-border, be able to evidence that VAT has been properly accounted for in the Member State of arrival, and remediate immediately when invoice errors are spotted so that the position is regularised quickly and does not lead to an accumulation of VAT liabilities.