Prepared by Davide Accorsi and Andrea Casalini
With the judgement of 11 February in case T‑689/24, I.S.A., the General Court of the European Union again ruled on the determination of the “dies a quo” for exercising the right to deduct VAT.
The case concerns a Polish company that submitted a request to its tax administration to deduct VAT on purchases for which VAT became due in a certain period, even though the relevant invoices were received in the following period, but before the deadline for submitting the declaration relating to the period in which the purchases were made.
Polish legislation states that the right to deduction may be exercised only after the transaction generating this right has taken place and provided that the person wishing to exercise the right is in possession of the relevant taxable invoice.
The General Court of the European Union established that the right to deduct VAT arises at the moment when the tax becomes due, that is, generally, when the taxable transaction is carried out. Possession of the invoice is a formal requirement for exercising this right. Therefore, deduction may already be exercised in the period in which VAT becomes due, even if the invoice is acquired later.
The principle expressed by the Court is at odds with the practice of the Italian tax authorities, which, interpreting the judgement of the Court of Justice of the European Union in case C-152/02, Terra Baubedarf-Handel GmbH, clarified that “the dies a quo from which the period for exercising deduction runs must be identified as the moment when the purchaser/contractor meets the dual condition: i) (substantive) of the tax becoming due and ii) (formal) of possession of a valid invoice drawn up in accordance with the provisions of Article 21 of the aforementioned Presidential Decree no. 633” [1].
The General Court of the European Union, however, expressly clarified that its conclusions are not in conflict with those of the judgement in the mentioned case. In fact, in the Terra Baubedarf-Handel GmbH case, the European Union judges were called upon to rule on a different situation, where the invoice was not yet available at the moment when deduction was intended to be exercised; for this reason, it was established that the right to deduction could be exercised from the moment of receipt of the relevant invoice.
In case T‑689/24, the Polish taxpayer already has the invoice when submitting the declaration for the period in which the tax became due. Consequently, they may exercise the right to deduction retroactively for that period.
In light of the clarifications provided, Article 1 of Presidential Decree No. 100/1998—which precludes the deduction of VAT in the year the tax becomes due if the invoice is received in the following year—conflicts with European Union provisions. In this context, the enabling law for tax reform (Law No. 111/2023) becomes particularly important. Aware of the significant differences between the national regulations and the EU model, this law delegates to the Government, through Article 7, the task of issuing legislative decrees to overcome these discrepancies. Among the various delegated provisions—almost entirely unimplemented to date—is one that stipulates that for transactions whose tax becomes due in the year preceding the receipt of the invoice, the right to deduct may be exercised no later than with the tax return for the year in which the invoice is received. If implemented, this provision would allow the alignment of domestic legislation with the principles established by the General Court of the European Union in case T-689/24. In the absence of such harmonization, the taxpayer may, in fact, choose whether to directly apply the criterion provided by the Court’s ruling or to continue applying the different criterion set out by the current national legislation.
[1] See circular no. 1/E of 17 January 2018.
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