The European Court of Justice ruled that VAT that was not due and had been invoiced in error to the beneficiary of services and paid to the tax authorities of the member state where those services were supplied, was not refundable under art. 2 and 5 of Council Directive 79/1072 (‘the eighth directive’). Except in the cases expressly provided for in art. 21(1) of Council Directive 77/388 (‘the sixth directive’), only the supplier was liable for payment of VAT for the purposes of the tax authorities of the member state where the services were supplied.

Facts

The taxpayer was a company whose principal place of business was in Germany and which had no permanent establishment in Italy. In 1994 an Italian firm provided the taxpayer with advertising and marketing services on which it charged VAT to the taxpayer and paid it to the Italian tax authorities. The taxpayer thus sought partial reimbursement of the two sums of VAT paid for the year 1994 which it considered it had paid unduly, since the services at issue had been supplied to a taxable person established in a member state other than Italy, namely Germany. Therefore, the VAT was payable in that latter member state. The national tax authorities refused that reimbursement. The taxpayer then challenged that refusal before the Italian courts. Both at first instance and on appeal, the action was dismissed on the ground that the invoices issued related to advertising and marketing services which were not subject to VAT. They concerned advertising and marketing services that were not subject to VAT because the condition as to territory was not fulfilled inasmuch as those services were supplied to a person taxable in another member state.

The taxpayer then brought an action before the appeal court which, taking the view that the decision in the case turned on the interpretation of rules and principles of Community law, decided to stay the proceedings and to refer to the ECJ for a preliminary ruling.

Issues

Whether art. 2 and 5 of the eighth directive had to be interpreted as meaning that VAT which was not due and had been invoiced in error to the beneficiary of the services, then paid to the tax authorities of the member state of the place where the services were supplied, was refundable; whether it was sufficient that the recipient of a service was entitled to request reimbursement of the VAT from the supplier which incorrectly invoiced that tax and which could, in turn, seek reimbursement from the tax authorities, or whether such a recipient must be able to bring a claim directly against those authorities.

Decision

The ECJ (Second Chamber) (ruling accordingly) said that the common system of VAT did not expressly provide for the case where tax had been invoiced in error. It was not contested by the parties that the services provided for the taxpayer, namely advertising and marketing services, were not subject to VAT. Under art. 9(2)(e) of the sixth directive, the place where the advertising services were supplied to persons established in the Community, but not in the same country as the supplier, was to be the place where the customer had established his business or had a fixed establishment to which the service was supplied. In this case, those services were treated as supplied in Germany.

Article 2 of the eighth directive provided that any taxable person who was established in a member state other than the one in which the services were supplied was entitled to reimbursement of the VAT charged in respect of the services with which he was supplied in the member state in which that place was situated for the purposes of the transactions referred to, inter alia, in art. 17(3)(a) of the sixth directive. Under the first paragraph of art. 5 of the eighth directive, reimbursement was determined in accordance with art. 17 of the sixth directive as applicable in the member state of refund.

The right to deduct might be exercised only in respect of taxes actually due, i.e. the taxes corresponding to a transaction subject to VAT or paid in so far as they were due. That right to deduct did not apply to VAT which was due, under art. 21(1)(c) of the sixth directive, solely because it was mentioned in the invoice. It was not the purpose of the eighth directive to undermine the scheme introduced by the sixth directive. In addition, the purpose of the eighth directive was to lay down detailed arrangements for the refund of VAT paid in a member state by taxable persons established in another member state. Its objective was therefore to harmonise the right to refund as provided for in art. 17(3) of the sixth directive. Articles 2 and 5 of the eighth directive referred expressly to art. 17 of the sixth directive. In those circumstances, since the right to deduct, within the meaning of art. 17, could not be extended to VAT unduly invoiced and paid to the tax authorities, VAT was not reimbursable on the basis of the provisions of the eighth directive.

Article 21 of the sixth directive established the basic rule that only the supplier was liable for payment of VAT and subject to obligations towards the tax authorities. However, the exceptions to that rule were exhaustively listed in that provision and, where the taxable supply of goods or of services was effected by a taxable person who was not established within the territory of the country, member states might adopt arrangements whereby tax was payable by another person, who might be the recipient of the taxable services. Even in the present situation, in which the transfer mechanism of the tax obligation laid down in art. 9(2)(e) of the sixth directive was applicable, the taxpayer could have requested reimbursement of the VAT as a person liable for payment of such tax. The taxpayer's mechanism was with the tax authorities of the member state in which it was established, in this case Germany, and not with those of the member state in which its supplier unduly invoiced and accounted for VAT, namely Italy.

The member states were free to choose the procedure which they judged appropriate for guaranteeing that reimbursement, provided that the principle of effectiveness was respected. In the absence of Community rules on applications for the repayment of taxes, it was for the domestic legal system of each member state to lay down the conditions under which such applications might be made observing the principles of equivalence and effectiveness. Further, the sixth directive did not contain any provisions relating to the adjustment by the issuer of the invoice of VAT which had been improperly invoiced. The sixth directive merely defined, in art. 20, the conditions to be complied with in order that deduction of input taxes might be adjusted at the level of the person to whom goods or services had been provided. It was for the member states to lay down the conditions in which improperly invoiced VAT might be adjusted.

In the absence of relevant Community rules, the detailed procedural rules designed to ensure the protection of the rights which individuals acquired under Community law were a matter for the domestic legal order of each member state, under the principle of the procedural autonomy of the member states. If reimbursement of the VAT became impossible or excessively difficult, in particular in the case of the insolvency of the supplier, those principles might require the recipient of the services to be able to address his application for reimbursement to the tax authorities directly. Thus, the member states had to provide for the instruments and the detailed procedural rules necessary to enable the recipient of the services to recover the unduly invoiced tax in order to respect the principle of effectiveness.

Accordingly, the principles of neutrality, effectiveness and non-discrimination did not preclude national legislation according to which only the supplier might seek reimbursement of the sums unduly paid as VAT to the tax authorities and the recipient of the services might bring a civil law action against that supplier for recovery of the sums paid but not due. However, where reimbursement of the VAT would become impossible or excessively difficult, the member states had to provide for the instruments necessary to enable that recipient to recover the unduly invoiced tax in order to respect the principle of effectiveness.

European Court of Justice (Second Chamber).
Judgment delivered 15 March 2007.