Circular 2024/C/80 was prompted by the Euler Hermes judgment of the Court of Justice of 9 February 2023. The Court held that the part of a receivable for which the insured party is compensated by the credit insurer cannot, for the purposes of Article 90 of the VAT Directive, be regarded as unpaid.
At the end of 2024, the Belgian VAT authorities drew conclusions from that judgment. According to the authorities, compensation paid by the credit insurer constituted payment by a third party. For the compensated part, the insured party could therefore no longer recover VAT.
The credit insurer itself was also excluded from VAT recovery, even where it had been subrogated to the rights of the insured party. In doing so, the authorities departed from a practice that had been applied for many years.
Under decision E.T.112.070, a credit insurer could, subject to certain conditions, recover VAT in place of the insured party. Who could exercise that right depended on the extent of the cover and the subrogation.
Where only the receivable excluding VAT was insured, the right to recover the VAT in principle remained with the insured party. Where the VAT itself was also insured and the credit insurer had been fully subrogated to the rights of the insured party, the credit insurer could itself claim the VAT refund.
As from 1 January 2025, Circular 2024/C/80 brought that regime to an end in administrative practice.
The Council of State intervenes
The Belgian State argued that the circular merely clarified how, in the view of the authorities, the Euler Hermes judgment should be applied. As a rule, a purely interpretative circular cannot be annulled by the Council of State.
The Council of State did not agree.
According to the Council, the circular did more than merely explain the existing rules. It excluded credit insurers from a VAT recovery possibility on which they had previously been able to rely. The circular therefore changed their legal position.
The Council accordingly regarded the circular as regulatory in nature.
The Council accordingly regarded the circular as regulatory in nature.
The Council then found that it had not been demonstrated that the circular had been adopted by the competent authority.
Article 1 of Royal Decree No. 4 allows, under certain conditions, for derogations from the ordinary VAT refund rules.
Such a derogation must, however, be adopted by or on behalf of the Minister of Finance. According to the Council, it had not been demonstrated that the circular had been adopted by the Minister of Finance or by a person validly authorised to act on the Minister's behalf.
Such a derogation must, however, be adopted by or on behalf of the Minister of Finance. According to the Council, it had not been demonstrated that the circular had been adopted by the Minister of Finance or by a person validly authorised to act on the Minister's behalf.
For that reason, the Council of State annulled Circular 2024/C/80 in full.
What does this mean for existing files?
The main practical consequence is that, according to the judgment, decision E.T.112.070 applies again.
Credit insurers and insured parties should therefore review files from 1 January 2025 onwards. This is particularly relevant where:
- no VAT refund was claimed because, under the administrative position then applicable, the circular excluded that possibility;
- a refund previously claimed was restricted; or
- a refund was refused in full.
The annulment does not, however, automatically result in a VAT refund. For each file, the extent of the subrogation, the VAT cover, the statutory conditions and the prohibition on double recovery must, among other matters, be examined.
Any applicable limitation period also requires attention. This must be assessed on a file-by-file basis, taking into account when the right to a refund arose and any interruption or suspension of the limitation period.
Where a formal refusal has already been notified, it must also be assessed at what procedural stage the file currently stands and which options remain available.
The discussion is not over
The annulment of the circular does not mean that the substantive discussion following Euler Hermes has been definitively settled.
The Council of State annulled the circular because of its regulatory nature and because the competence of its author had not been demonstrated. It did not rule on whether the VAT analysis of the authorities, based on the Euler Hermes judgment, is substantively entirely correct or incorrect.
The Euler Hermes judgment therefore remains relevant. The authorities may also lay down their position again, but then through a legally valid measure and with due regard to the rules on competence, the principle of legality in tax matters and EU law.
To be continued.