VAT, chargeability of tax and related deduction

A recent judgment of the Court of Justice of the European Union (Case C-9/20 of 10 February 2022) ruled on the principle of symmetry governing the relationship between VAT chargeability and deductibility, as set out in Article 167 of Directive 2006/112/EC.

The legislation analysed by the European judges was, in this specific case, the German one, and the question concerned the moment of the right to deduct VAT, i.e. whether it arises when the tax becomes chargeable or whether Member States may derogate from this principle in the event that the tax from the supplier is only payable when the consideration is received.

According to the ordinary principle of symmetry established by the European Union, the chargeability of VAT is linked to the time at which the supply of goods or services takes place (the “chargeable event”). However, according to Article 66 of Directive 2006/112/EC, Member States may provide that, for certain transactions or for certain categories of taxable persons, the VAT becomes chargeable at a different moment, but no later than the issuing of the invoice or the payment of the consideration. In the latter case, Community case-law has ruled that, in accordance with the principle of symmetry between chargeability and deductibility of VAT, if the VAT becomes chargeable when the invoice is issued or the consideration is paid, the right to deduct must also necessarily coincide with that moment.

In the present case, Germany, on the one hand, has made use of such derogation, providing that the chargeability is linked to the payment of the consideration; on the other hand, in breach of Article 167 of Directive 2006/112/EC, it has provided that the deduction remains ‘linked’ to the carrying out of the transaction, thus violating the principle that regulates – from a temporal point of view – the relationship between chargeability and deductibility.

In relation to this case, according to the European Court, the ‘deferral’ provided for by a Member State of the chargeability of tax (that is the right of the Treasury to collect VAT on the transaction carried out by the supplier) in relation to the chargeable event (the carrying out of the transaction) must also entail a deferral of the right to deduct VAT on the part of the supplier. Thus, if by virtue of a national derogation, VAT becomes chargeable to the supplier only upon receipt of the consideration, it is not possible to provide at the same time that the right to deduct remains linked to the time the transaction is carried out. In other words, if the VAT is due at the time of payment of the price, it is also at that time that the right to deduct arises.

This judgment is also very useful from an Italian point of view, given that Italian law also provides for a derogation from the aforementioned Community legislation. According to Article 6(3) of Presidential Decree 633/1972, services are deemed to have been rendered upon payment of the consideration, and therefore, according to the Community ruling, the deduction by the purchaser would be allowed no earlier than in the month of that payment.

LDP remains at your disposal for any further clarifications