No direct claim if the tax office has already refunded the VAT – ECJ C-83/23 of 5 September, H GmbH

Facts of the case

The German E-GmbH sold six motorboats to a German KG in order to then lease them back (sale-and-lease-back). It issued invoices with German VAT for the sale of the motorboats, collected the VAT from the KG and paid it to the tax office. The KG deducted the input VAT.

A tax audit revealed that the motorboats were located in Italy when they were sold, meaning that the supplies were not taxable in Germany but were subject to VAT in Italy. The tax office cancelled the KG's input VAT, whereupon the KG paid it back to the tax office.

Insolvency proceedings were opened over the assets of E-GmbH. The insolvency administrator revoked the VAT statement in the invoices for the motorboats and corrected the VAT to the tax office in accordance with § 17 UStG (German VAT Code), whereupon the tax office refunded the VAT to the insolvency estate in 2014. The insolvency administrator indicated that he would not reimburse the KG's VAT and would not pay any VAT in Italy either.

The KG applied to the tax office for a refund of input VAT on equitable grounds on the basis of a direct claim, which the tax office rejected. The appeal was unsuccessful. The BFH referred the case to the ECJ for a preliminary ruling. The plaintiff is now H GmbH as the legal successor to the KG.

Questions referred (summarised and simplified)

The case largely corresponds to the ECJ case HUMDA, in which an invoice was issued with local (Hungarian) VAT, although the place of supply was in Italy. There were also liquidation proceedings there and the liquidator did not want to refund the VAT to the recipient. In this case, the ECJ ruled in favour of a direct claim by the recipient.

However, the H GmbH case has special features that the ECJ has not yet dealt with:

• If the invoicing had been correct, the plaintiff would not have received an invoice without VAT, but an invoice with (even higher) Italian VAT. For this reason alone, it appeared questionable whether the plaintiff had a claim for reimbursement of VAT against E-GmbH at all. There may only be a claim for amendment of the invoice. This corresponds to the situation in the HUMDA case.  However, the ECJ there applied a viewpoint relating only to the respective Member State and had not yet addressed the question of whether the fact that the plaintiff had not asserted this claim precluded the direct claim
• E-GmbH was not willing to register in Italy and was therefore possibly committing tax evasion in Italy, which the plaintiff was also aware of. For this reason, the direct claim might possibly be denied.
• The tax office has already refunded the VAT to E-GmbH. If a direct claim was to be granted here, the tax office would have to pay twice. Whether it is obliged to do so appears questionable to the BFH.  
• On the other hand, under EU law, E-GmbH's claim for reimbursement against the tax office could also depend on E-GmbH reimbursing the VAT to the plaintiff. The BFH has already decided this elsewhere (first V R 56/06 of 18 September 2008; also: XI R 28/16, 16 May 2018, adopted by the tax administration).

ECJ ruling: No direct claim by the plaintiff

The ECJ ruled that the direct claim was excluded as the tax office had already refunded the VAT to E-GmbH's insolvency estate. The tax office could not reasonably be expected to refund the VAT twice.

It should also be noted that the reimbursement must generally be made to the supplier, as the claim for reimbursement is a consequence and supplement to their rights. Direct reimbursement to the recipient is the exception.

The tax office could not be required to take into account that the refund in the usual chain may have been significantly disrupted or interrupted due to the insolvency proceedings of the supplier, so that the VAT to be refunded to the plaintiff fell into the insolvency estate and the plaintiff might not be refunded.

Combating tax evasion and abuse is indeed one of the objectives of the VAT Directive. However, the tax office cannot be expected to check whether the supplier is committing tax evasion in another Member State.

The plaintiff should have filed a civil action for the issuance of an invoice with Italian VAT.

Classification

The statement that the fact that reimbursement by the supplier to the recipient was disrupted due to the insolvency should not be taken into account contradicts the HUMDA judgement. In that case, the ECJ considered this to be significant and affirmed the direct claim. The decisive argument for the ECJ to decide this case differently from the HUMDA case appears to be the fact that the VAT had already been refunded to the supplier.

According to the case law of the BFH, the reimbursement of corrected Section 14c VAT Act VAT to the supplier by the tax office depends on the supplier having reimbursed the VAT to the recipient. The first judgement of the BFH in this sense dates from 18 September 2008 (V R 56/06) and was therefore already known to the tax office in this case when it refunded the VAT to E-GmbH in 2014. If the tax office had complied with this precedent, there would have been no problem. Unfortunately, the ECJ did not deal with this issue, so it remained unclear whether this German case law is compatible with EU law or even required by EU law. It remains to be seen how the BFH will implement the ECJ ruling.