Edited by Davide Accorsi and Beatrice Pelo
In its judgment of 12 September 2024 in Case C-429/23, the Court of Justice of the European Union (hereinafter also the ‘CJEU’) stated that the right to deduct VAT accounted on purchases must be exercised within the time limits laid down by the relevant national legislation, and that submitting a supplementary VAT return after these deadlines does not allow the VAT deduction of the VAT not deducted on time.
The case concerns a Bulgarian company that, according to the national rule, could have exercised its right to deduct the VAT indicated on certain purchase invoices at the latest with its November 2020 return. However, the said company exercised this right with the following month’s declaration and asked the local tax authority to correct the November declaration by supplementing it with the late deduction.
The Bulgarian tax authority denied the right to deduct and, in a dispute between the parties, the national court referred the matter to the CJEU. In particular, the issue raised concerns the compatibility with EU law of the Bulgarian rule that in 2020 precluded the right to deduct VAT 12 months after the right arose, despite the deadlines for some tax returns (but not for VAT) had been extended during the same period due to Covid-19.
In response to this question, the CJEU, after recalling that the right to deduct is a fundamental principle of the common VAT system, noted that:
- ‘the right of deduction is normally exercisable immediately’;
- ‘a taxable person may nevertheless be authorized to make a VAT deduction […] even if it did not exercise its right during the period in which the right arose, subject, however, to compliance with certain conditions and procedures determined by national legislation’;
- ‘the possibility of exercising the right to deduct VAT without any temporal limit would be contrary to the principle of legal certainty’;
- ‘a limitation period the expiry of which has the effect of penalizing a taxable person who has not been sufficiently diligent and has failed to claim deduction of the input VAT, by making it forfeit its right to deduct VAT, cannot be regarded as incompatible with the regime established by the VAT Directive in so far as, first, that limitation period applies in the same way to analogous rights in tax matters founded on domestic law and to those founded on EU law (principle of equivalence) and, secondly, that it does not in practice render impossible or excessively difficult the exercise of the right to deduct VAT (principle of effectiveness)’.
In view of the above principles, the CJEU held that the Bulgarian rule was compatible with EU law because:
- the principle of equivalence was not infringed by the mere fact that certain emergency measures had been used for direct taxes which, on the contrary, had not been adopted for VAT, since these were two different types of taxes;
- a limitation period of 12 months from the registration of the taxable person for VAT purposes is not such as to make it practically impossible or excessively difficult to exercise the right to deduct VAT.
Lastly, the CJEU clarifies that the adjustment mechanism provided for in Articles 184 and 185 of Directive 2006/112/EC is not applicable where a taxable person, who has not exercised his right to deduct VAT when submitting his VAT return for a given tax period, intends to exercise that right at a later date, on the occasion of an adjustment of that return, where the period laid down by national law for the exercise of that right has expired.
In essence, the CJEU ruled that, in the case of the Bulgarian rule[1], the submission of a supplementary VAT return after the expiry of the time limit for exercising the right to deduct does not allow that time limit to be extended. Therefore, Bulgarian VAT not deducted in time cannot be deducted by submitting a supplementary return.
With reference to this last point, it should be noted that the Italian tax authorities, among other documents, in circular letter 1/E of 2018, in apparent contrast with what the CJEU has indicated, clarified that ‘the customer (taxable person) who has not exercised the right to deduct the VAT accounted on the purchases within the aforementioned terms (by 30 April of the year following the year in which the condition for deduction occurred, ed.).
May recover the VAT by submitting the aforementioned supplementary return pursuant to Article 8, paragraph 6-bis of Presidential Decree No. 322 of 1998, no later than the deadline set forth in Article 57 of Presidential Decree No. 633 of 1972 (i.e. by 31 December of the fifth year following the year in which the return was submitted)’.
In the writer’s opinion, the interpretation provided by the Italian tax authorities in the above-mentioned document would not be to be at odds with the principles expressed by the CJEU, since the national rule (i.e., Article 19(1), second sentence, of Presidential Decree 633/1972) provides that the right to deduct VAT ‘shall be exercised at the latest with the return for the year in which the right to deduct arose and under the conditions existing at the time when the right arose’.
Our position is based on the fact that, whereas the Bulgarian rule establishes a time limit for exercising the right to deduct of 12 months from the moment the right arose, the Italian rule just quoted states that the time limit for exercising the right to deduct coincides with the time limit for submitting the VAT return for the year in which the right arose. Therefore, in order to determine the deadline within which the right to deduct VAT can be exercised under the Italian rule, it is necessary to determine the deadline for submitting the VAT return for the year in which the right to deduct arose.
Considering that, in the case of a timely filed return, the deadline for submitting the (supplementary) return for the year in which the condition for deduction was met is 31 December of the sixth subsequent year, the Italian supplementary VAT return, in line with the national rule, would allow the use of the longer deadlines for deduction, meaning those available for assessment under Article 57 mentioned above.
[1] Article 72(1) of the Bulgarian VAT act states that ‘a person registered under this law may exercise the right to deduct VAT in the tax period in which that right arose or in one of the 12 subsequent tax periods’. Thus, the time-limit laid down by the Bulgarian provision appears to be linked exclusively to the expiry of the 12 months following that in which the condition for deduction arose, whereas it does not appear to be linked in any way to the time-limit for submitting the relevant VAT return.
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