An entrepreneur who neatly pays the VAT charged to him may not deduct it because it should have been reverse-charged.
Course of business
The case plays before the Amsterdam Court of Appeal and concerns a VOF operating a hotel. To clean the hotel, the VOF hires staff from a BV (part of whose shares are held by the VOF partners). The BV puts VAT on the invoice. This VAT is paid by the VOF to the BV and deducted in the VOF's VAT returns. The BV does not remit the VAT to the tax authorities and, after some time, goes bankrupt.
VAT non-deductible
Without much justification, the Court upheld the position of the Tax Administration, which refused the VOF's deduction of VAT. Indeed, European case law shows that VAT, which should have been transferred under the applicable regulations, cannot be deducted. The VOF must repay all VAT deducted based on the BV's invoices to the tax authorities.
By the way, the essence of the problem lies in the fact that the BV fails, which means the Tax Authorities can whistle for their VAT cents. If the performing entrepreneur (in this case: the BV) duly remits the unjustly non-transferred VAT to the Tax Authorities, the Tax Authorities may not refuse the deduction. Even if the Tax Authorities can still recover the VAT from the BV, the Tax Authorities may not refuse the deduction from the VOF, but must subsequently collect the VAT from the BV. This is evident from section 3.5.2 the decision on administrative, billing and other obligations.