Too high a VAT amount stated on invoices to final consumers – The new regulations

ECJ decision regarding situations where too high a VAT amount was stated

The case dealt with by the ECJ concerned an Austrian GmbH [a limited liability company under Austrian law] that operates indoor playgrounds. The GmbH issued invoices to its customers where VAT was charged at the standard rate even though the services supplied were only subject to a reduced rate of VAT. The competent local tax office required that the invoices be corrected, otherwise the VAT that was erroneously set too high would have to be paid. According to the ECJ judgement of 8.12.2022 (case: C-378/21) there is no risk of a loss of tax revenue because the final consumers of the playground operator’s services do not deduct input tax. Moreover, Article 203 of the EU Directive on the VAT system is not applicable with the consequence that the VAT that was erroneously set too high is not payable.

Application of Section 14c (1) UStG is limited

The Federal Ministry of Finance (Bundesministerium der Finanzen, BMF), in its circular of 27.2.2024 (reference: III C 2 – S 7282/19/10001 :002), adopted this ECJ judgement into the German application regulations. According to this BMF circular, if a business charges the final consumer an incorrect amount of VAT for a supply that has actually been performed then no VAT will arise under Section 14c (1) UStG. The application of Section 14c (2) UStG remains unaffected, except for the small business regulation. 

Please note: An unauthorised statement of the VAT element would however still result in a tax liability.

A distinction between invoice recipients

Final consumers as defined by the ECJ are not business owners and business owners not acting as such. Invoices to business owners for their business spheres do not fall under this judgement. In addition, it does not matter whether or not input tax was actually deducted. The theoretical possibility of input tax deduction alone would have adverse consequences for the application of the judgement. In such cases, according to the BMF circular, opting retrospectively and then a partial tax deduction pursuant to Section 15a UStG could not be ruled out and, consequently, there would be a risk of a loss of tax revenue.

Separation in mixed cases

According to the BMF circular of 27.2.2024, where there has been a supply to both a final consumer as well as to a business owner for their business (mixed cases) the ECJ judgement shall be applied solely to the final consumer. A separation shall be carried out.

As long as there is no loss of tax revenue, a distinction can be made on the basis of the type of service supplied as to whether the recipient is the final consumer or the business owner who is entitled to deduct tax. The catalogue of services in Section 3a.2(11a) of the ordinance on the application of VAT (Umsatzsteueranwendungserlass, UStAE) shall be used for the assessment. However, if it is clear from the outset that the business owner uses the service supplied for non-business purposes then the above-mentioned catalogue will not be used.

Business owner’s obligation to provide proof 

According to the amended UStAE, the business owner would have to provide credible proof to the local tax office that the invoice was issued to a final consumer. If it is not possible to reasonably determine whether the invoice recipient is a business owner or a final consumer then the ECJ judgement would not be applicable. Then again, the fiscal authority would have to establish whether the wrongly stated tax constituted either an incorrect or an unauthorised statement of the VAT element.

Outlook: The issue is how the ECJ judgement will be implemented. Separating between final consumers and businesses can be difficult and could entail administrative costs that are too high for businesses. Moreover, Austria’s Supreme Administrative Court (Verwaltungsgerichtshof, VwGH) has referred further questions related to this matter to the ECJ. More details could once again be added to the judgement by the ECJ. At the Federal Fiscal Court there are two appeals pending regarding this matter (case references: V R 16/22, XI R 25/23). According to the BMF circular, the principles set out in the ECJ judgement shall be applied to all cases that are still open.