Barlis 06 – Investimentos Imobiliários e Turísticos SA v Autoridade Tributária e Aduaneira [C-516/14]
Barlis Real Estate Investment and Tourism v Court of Justice of the European Communities (‘the Court’)
This month’s Chartered Accountants Tax Case Digest looks at whether the lack of a sufficient description on an invoice precludes a taxpayer from recovering VAT. The tax authority in Portugal had refused to allow input VAT to be deducted by the company on the receipt of legal services received on the grounds that the invoices issued by the legal firm did not satisfy the formal requirements laid down by national legislation and VAT Directives.
The Court in this case ruled that the tax authorities cannot refuse the right to deduct VAT solely because the invoice did not satisfy the conditions required by the VAT Directive if they have all the information available to them in order to ascertain that the conditions have been satisfied.
Background
Barlis operates hotels with restaurants. Between 2008 and 2010, Barlis engaged a legal firm to provide legal services. Four invoices were issued to Barlis from the legal firm and the descriptions printed on the invoices were ‘Fees for legal services from [date] until present’ and ‘Fees for legal services until present date’.
Barlis deducted the VAT shown on these invoices. The tax authorities conducted a review of this claim and found that Barlis was not entitled to the VAT deduction on the grounds that the descriptions written on the invoices issued by the legal firm were insufficient.
The tax authorities therefore proposed VAT corrections in the amount of €8,689. Barlis was notified of its right to a preliminary hearing in the matter and subsequently submitted additional information which gave more details about the legal services received. However the tax authorities still refused the claim stating that the annexes were not documents equivalent to invoices and that the equivalent documents had to satisfy all the requirements of the VAT code in order to claim a deduction.
Barlis brought an administrative appeal against this decision in May 2013 and this was dismissed in September 2013 on the basis that reference to legal services did not satisfy the requirements of Article 226 of VAT Directive 2006/112 or the national provisions implementing that Directive because the invoices did not contain details of the services that had been supplied or of their individual or total quantities.
For reference point, Article 226 of VAT Directive 2006/112 provides that “only the following details are required for VAT purposes on invoices issued…
(6) the quantity and nature of the goods supplied or the extent and nature of the services rendered;
(7) the date on which the supply of goods or services was made or completed or the date on which the payment on account referred to in points (4) and (5) of Article 220 was made, in so far as that date can be determined and differs from the date of issue of the invoice.”
Article 220 states that “Every taxable person shall ensure that, in respect of the following, an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party: supplies of goods or services which he has made to another taxable person or to a non-taxable legal person”
In respect of the national law implanting the Directives, Portuguese tax law states that invoices must contain “the common name of the goods or services supplied, together with specification of the information necessary to determine the applicable tax rate”. There is only a right to deduct the VAT shown on the invoice if the invoice satisfies these conditions.
Following the outcome of the administrative appeal, Barlis then requested a single-member Arbitration Tribunal and the Tribunal referred the proceedings to the Court for ruling.
The Tribunal asked two questions:
- Whether a description which states “legal services rendered from such a date until present date” or “legal services rendered until the present date” complies with the requirements under Article 226; and
- Whether Article 178(a) of Directive 2006/112 must be interpreted as precluding the national tax authorities from refusing the right to deduct VAT solely because the taxable person holds an invoice which does not meet the requirements under Article 226 even though the tax authorities have all the necessary information available to them.
Decision
Considering the first question, Article 226(6) requires that an invoice detail the extent and nature of the services rendered but does not state that it is necessary to give an exhaustive description of the specific services supplied. The objective of the required detail is to enable tax authorities establish whether there is a right to a VAT input deduction.
The Court stated that the description of ‘legal services’ was not sufficient in describing the nature of the services provided and that the extent of the service cannot be verified. The invoice should also show the date on which the services were rendered and while a range of time periods are allowed, one of the invoices did not state when the services provided commenced.
Considering the second question, it was held by the Court that the fundamental neutrality principle of VAT requires a VAT input deduction where the substantive requirements are satisfied even if the taxpayer has failed to comply with some formal conditions. Furthermore where the tax authorities have the information necessary to establish that such requirements have been satisfied, they cannot impose additional conditions on the taxpayer and deny the right to deduct the VAT.
Therefore the Court concluded that the tax authorities cannot refuse the right to deduct VAT solely because the invoice did not satisfy the conditions required by Article 226 in a situation where they have all the information available to them in order to ascertain that the conditions have been satisfied. The authorities must do more than just examine the invoice; they must accept additional information as related to the initial invoice. The deduction was therefore allowed.
Full judgement is available here:
