Late invoice for intra-Community acquisition: deduction cannot be denied for not being claimed in the original period

The case concerned Aptiv Services Hungary, a Hungarian company that was subject to a tax audit covering the period from 1 November 2020 to 31 December 2021.

During that audit, the Hungarian tax authorities found that Aptiv had deducted VAT in its VAT returns for the period from July to September 2021 in respect of intra-Community acquisitions of goods which, in substance, had already taken place between 2016 and 2018.

According to the Hungarian tax authorities, Aptiv should not have exercised the right to deduct in 2021. In their view, the deduction could only have been claimed by way of corrections to the VAT returns for the original years in which the acquisitions had taken place.

The reason why the deduction was only claimed in 2021 was, however, straightforward: the relevant invoices had only been received at that point and were only then recorded in the accounting records. Under the applicable national rules, Aptiv could not exercise its right to deduct in the earlier periods without an invoice.

The issue was compounded by the fact that, for part of the years concerned, the domestic correction procedure was no longer available. A special refund procedure was also refused.

The question referred to the Court

The Hungarian court asked whether the VAT Directive, read in the light of the principles of fiscal neutrality,
proportionality and effectiveness, precludes national legislation that denies the right to deduct where the taxable person exercises that right in a later period than the one in which the VAT became chargeable, where:

Put differently, can a Member State block the right to deduct on purely procedural grounds where the invoices only become available later?

The right to deduct as a fundamental principle

The Court reiterates its settled case law: the right to deduct is a fundamental principle of the common VAT system and, in principle, cannot be restricted.

The purpose of the deduction system is to relieve the taxable person entirely of the VAT burden incurred in the course of its economic activities. In that way, the principle of VAT neutrality is safeguarded.

That also applies in the case of intra-Community acquisitions, where a reverse charge mechanism generally applies and the VAT due is, in principle, deductible at the same time.

Substantive and formal conditions

Once again, the Court draws the traditional distinction between the substantive and formal conditions governing the right to deduct.

The substantive conditions are that:

The formal conditions concern the way in which the right is exercised, including VAT reporting, accounting records and invoicing.

For intra-Community acquisitions, Article 178(c) of the VAT Directive requires the taxable person to hold an invoice. The Court emphasises that possession of an invoice is a formal rather than a substantive condition.

The relevant period for exercising the deduction

Under the scheme of the VAT Directive, the right to deduct arises when the deductible tax becomes chargeable. In the case of intra-Community acquisitions, that is, in principle, when the invoice is issued or, at the latest, when the invoicing deadline expires.

The deduction can, however, only be exercised once the taxable person actually holds the invoice.

It follows that, in practice, the deduction must be claimed in the first period in which both conditions are satisfied:

Where the invoice is received only later, the first period in which the right can effectively be exercised therefore also shifts.

No definitive loss of the right to deduct

That, according to the Court, is precisely where the Hungarian rules failed.

It was apparent from the order for reference that Aptiv had received the invoices only in 2021. Only at that point did the conditions for exercising the right to deduct appear to be satisfied.

The Hungarian rules nevertheless did not allow the deduction to be claimed in that period. Aptiv was instead required to revert to corrections of VAT returns for the years 2016 to 2018, even though that was no longer possible for part of those years.

According to the Court, national legislation cannot have the effect of making the exercise of the right to deduct impossible in practice, or excessively difficult.

A taxable person must therefore not be placed in a procedural trap whereby:

Effectiveness and proportionality

The Court bases its reasoning primarily on the principles of effectiveness and proportionality.

National procedural rules must not make the exercise of rights conferred by EU law impossible or excessively difficult. Equally, measures intended to safeguard the collection of VAT must not go beyond what is necessary.

In the present case, there was no indication of fraud. The referring court expressly noted that Aptiv had acted in good faith and that the public treasury had suffered no loss.

In those circumstances, refusing the right to deduct solely because of the timing of its exercise is disproportionate.

Reflections on the judgment

When it comes to reverse charge VAT and the right to deduct, this judgment is reminiscent of Ecotrade rather than the classic case law on the impact of late invoicing on VAT deduction, such as Volkswagen, to which the Court readily refers. In Ecotrade, the Court had already made clear that in a reverse charge context the right to deduct cannot be lost solely because of formal shortcomings in VAT returns or accounting records, where the substantive conditions are fulfilled and the VAT due is taken into account.

This also explains why Aptiv feels somewhat ambivalent. The outcome of the judgment is convincing. The Court confirms that a taxable person who receives the invoices only at a later stage, acts in good faith and remains within the limitation period may not definitively lose the right to deduct merely because that deduction was not exercised in the original period.

At the same time, the reasoning of the judgment reads largely as an extension of Volkswagen and Biosafe: a late invoice, an objective impossibility to exercise the deduction earlier, and therefore no definitive loss of deduction as long as the limitation period has not expired. That case law is understandable, but it does not fully correspond to the real core of the present case. Volkswagen and Biosafe concerned situations in which VAT only came into play at a later stage through invoicing or corrections of invoicing. Aptiv, by contrast, arises in a context of intra-Community acquisitions subject to the reverse charge mechanism, where chargeability and deduction in principle coincide.

This is precisely where the real significance of the judgment lies. The case is not only about whether the late receipt of an invoice may justify a definitive loss of the right to deduct. It also concerns whether a Member State may still require the taxable person to revert to the original tax period in order to exercise that deduction, where the invoice was received only later and the right could therefore only practically be exercised at that time. In a reverse charge context, it becomes difficult to defend the idea that the tax authorities may still claim the VAT due while procedurally cutting off the corresponding deduction on the ground that it was exercised too late. This is not merely a matter of late invoicing, but above all a question of fiscal neutrality.

For some Member States, including Belgium, this is far from a purely theoretical discussion. In practice, one still regularly observes that limitation periods and reassessments are applied more broadly when it comes to VAT due than when it comes to the corresponding right to deduct. In the case of intra-Community acquisitions, this may lead to a striking asymmetry: the VAT may still be claimed, while the corresponding deduction is considered by the tax authorities to no longer be available because it was exercised too late from a procedural perspective. Aptiv serves as a reminder that fiscal neutrality must not be undermined by purely procedural formalism.