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Volkswagen Wins ECJ Ruling On 'Time-Barred' VAT Refunds

by Ulrika Lomas,, Brussels

28 March 2018

The European Court of Justice (ECJ) has ruled in favor of Volkswagen in a case concerning the company's right to claim a VAT refund for VAT not initially charged on the supplies it received, with VAT having been retrospectively charged to the company as much as seven years after it received the supplies.

The case concerned national legislation in Slovakia that time-limited the grant of a refund in such circumstances, despite no error by Volkswagen.

In Volkswagen AG v. Finance Directorate of the Slovak Republic (C-533/16), released March 21, 2018, the ECJ ruled EU law "precludes legislation of a member state under which, in circumstances such as those at issue in the main proceedings [...] the benefit of the right to claim a refund of VAT is denied on the grounds that the limitation period provided for by that legislation for the exercise of that right began to run from the date of supply and expired before the application for a refund was submitted."

The case concerned supplies between 2004 and 2010 by Hella Leuchten-Systeme GmbH, a company established in Germany, and two Hella companies based in Slovakia, to Volkswagen AG, the auto giant, established in Germany, of moulds for the manufacture of lights for motor vehicles.

During this time, the Hella companies did not include VAT on the invoices they issued, as they considered the transactions not as supplies of goods but of "financial compensation," which is exempt from VAT.

In 2010, the Hella companies realized that the transactions were not being carried out in accordance with Slovak law. They issued invoices charging the VAT due by Volkswagen for supply of the goods in question, and in accordance with Law No 222/2004, filed supplementary tax returns for all years from 2004 to 2010, and paid the relevant VAT to the Treasury.

On July 1, 2011, Volkswagen submitted to the Bratislava I Tax Office (Slovak Republic) an application for a refund of the VAT charged on the supplied goods.

On April 2012, the tax office upheld the request only partially, ordering a refund only for the tax periods from 2007 to 2010 and not for the three subsequent years to 2014. This was due to the expiry of the limitation period of five years provided for by Slovak law.

In this regard, it held that the entitlement to a refund of VAT arose on the date of delivery of the goods, namely the date the VAT had become due, with the result that the right to claim a refund for the period from 2004 to 2006 had expired by the time the application for a refund was submitted.

Volkswagen brought an action before the Regional Court, Bratislava, Slovak Republic, which dismissed the action. It then appealed that decision before the Slovak Supreme Court, which referred questions to the European Court of Justice.

In ruling against the local tax authority's decision to deny the VAT refund request partially, the ECJ said: "In the present case, it is apparent from the order for reference that, even though the supply of goods at issue was carried out during 2004 to 2010, the Hella companies did not make an adjustment of the VAT until 2010 when they drew up invoices including the VAT, sent supplementary tax returns to the competent national authority and paid the amount of VAT that was due to the state treasury. It is equally apparent that the risk of tax evasion or non-payment of VAT has been excluded. In these circumstances, it was objectively impossible for Volkswagen to exercise its right to a refund before this adjustment, as, prior to that, it had neither been in possession of the invoices nor aware that the VAT was due."

"Indeed, it was only following that adjustment that the substantive and formal conditions giving rise to a right to deduct VAT were met and that Volkswagen could therefore request to be relieved of the VAT burden due or paid, in accordance with [the EU VAT Directive] and the principle of fiscal neutrality. Accordingly, since Volkswagen did not demonstrate a lack of diligence, and in the absence of an abuse or fraudulent collusion with the Hella companies, a limitation period which began from the date of supply of the goods and which, for certain periods, expired before this adjustment, cannot validly deny Volkswagen the right to a refund of VAT."

TAGS: Finance | tax | value added tax (VAT) | law | Slovakia | tax authority | legislation | Germany | Europe | Tax

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