New CJEU ruling on VAT assessment when reclassifying sales from exempt to taxable
In its new ruling, the CJEU addressed, in particular, the issue of determining the VAT tax base when a taxpayer incorrectly considered its supply to be exempt instead of applying the correct VAT rate.
The case in question concerned a Hungarian taxpayer selling goods to purchasers who were not residents of the European Union. The sale in question was eligible for VAT exemption if certain conditions were met. In particular, the seller had to complete a tax refund application form at the request of the foreign traveller. After exporting the goods outside the European Union, the taxpayer refunded the VAT amount indicated on the invoice to the buyers. In connection with the above, the taxpayer also charged the purchasers, regardless of the price of the goods sold, with the costs of managing the aforementioned documentation for tax purposes, and also applied a VAT exemption in this respect.
The Hungarian tax authority considered that these additional costs constituted remuneration for a separate service, which could not benefit from VAT exemption. Furthermore, the authority considered that the amount of these costs shown on the invoice issued to the purchaser should be increased by the amount of VAT (i.e., in the authority’s opinion, this value was a net amount).
In the course of a legal dispute between a taxpayer and a tax authority, a Hungarian court referred a number of questions to the CJEU for a preliminary ruling, including on the calculation of the VAT taxable amount for the service in question, in the event that it is considered a separate service not eligible for VAT exemption.
While the CJEU agreed with the tax authority’s approach assuming that in this case there was a separate activity of the taxpayer, distinct from the sale of goods itself, which was a VAT-taxable service, it took a different position on the calculation of the tax base for this service.
In the CJEU’s opinion, the price applied in this case by the taxpayer is the gross amount (i.e. including the VAT due after the transaction was reclassified from the exemption).
The CJEU pointed out that approval of the tax authority’s position would result in VAT being charged to the seller, which would violate the principle of the consumptive nature of VAT (the financial burden of which should be borne by the final recipient of the goods/services). In the CJEU’s view, it would be possible to assume that the invoiced amount is a net value if the seller, in accordance with the provisions of its Member State, had the possibility of claiming additional VAT from the purchaser (which was not the case here).
The judgment in question deserves full approval as a ruling consistent with the fundamental principles on which EU VAT is based. It should be noted that the approach expressed therein is a continuation of earlier CJEU case law in this area (see the judgment of 7 November 2013, Tulica and Plavoșin, C‑249/12 and C‑250/12).