An entrepreneur who states VAT on an invoice must pay that VAT (pursuant to the notorious Article 37). This also applies where the invoice does not relate to the supply of goods or a service, but to the repayment of a debt, as the court recently ruled that Supreme Court. After all, it cannot be ruled out that a trader who receives such a notice might deduct the VAT stated on it. The risk of financial loss to the State is clear.
This judgement once again highlights the vital importance of a correct invoicing process in relation to VAT. The incorrect inclusion of VAT on an invoice may result in that VAT having to be paid without the customer being entitled to a deduction.
What is an invoice?
Naturally, the party concerned in this case argued that the documents he had issued were not invoices. These documents had been issued in accordance with a debt repayment schedule. The repayment amounts were increased by 19% VAT on the document. It goes without saying that repayments of a debt are not subject to VAT. After all, the creditor performs a supply to the repayment not a payment, but simply a refund of part of the principal sum he himself had provided. The amount received in respect of a claim interest It is a payment in return for a service, but that service is exempt from VAT.
However, the concept of an invoice is interpreted very broadly in VAT law. The Supreme Court derives from European case law that any notice demanding payment from another person is regarded as an invoice. In this context, the obligation to pay VAT is not affected by whether the invoice meets all the requirements laid down for VAT purposes. However, this is important for the business receiving the invoice and claiming VAT deduction on the basis of that invoice.
VAT-registered business
VAT incorrectly stated on a document qualifying as an invoice is not payable where the invoice has been issued to a customer who does not qualify as a VAT-registered business. In such cases, the customer cannot deduct the VAT charged and there can be no question of the State suffering any loss.
Uncollectible debt
The business owner issued 11 invoices, but received payment of the instalments from the debtor on only three occasions. The debtor subsequently went into liquidation. The entrepreneur therefore invoked the scheme under which VAT paid is refunded by the tax authorities when it is established that the invoiced amounts will not be paid. Given the debtor’s bankruptcy, it was obvious that these amounts would not be received. However, the Supreme Court ruled that this scheme applies only to cases involving a supply of goods or services subject to VAT. As indicated above, the repayment of a debt does not constitute a supply of goods or services subject to VAT.
See also our articles:
Is VAT on a receipt deductible?
Beware of credit invoices
Payment discount and VAT