On April 12, 2018, the European Court of Justice (ECJ) passed a judgment concerning Flexipiso’s (supplier of safety and sports surfaces in Portugal) refusal to reimburse Biosafe (producer and seller of recycled granulated rubber in Portugal) the additional VAT it had paid following a tax adjustment.
From February 2008 to May 2010, Biosafe sold rubber granules worth € 664 538 to Flexipiso, on which Biosafe applied VAT at a reduced rate of 5%. However, during the tax inspection in 2011, the Portuguese tax authorities found out that the standard VAT rate of 21% should have been applied instead of reduced rate of 5%.
Biosafe paid the extra VAT amount of € 100 906.50 in total based on the revised VAT assessment and sent debit notes to Flexipiso to claim the difference. Flexipiso refused to pay the additional VAT on the grounds that the period of 4 years laid down by national law in Article 98(2) didn’t allow a company to make a deduction. In essence, the period in which Flexipiso could deduct additional VAT was from the date of issue of the invoices and not from the date of issue or receipt of the rectifying documents.
As a result of this judgment, taxpayers can now challenge the date of expiration and deduct VAT assuming formal requirements are met.
How does this affect your business?
If you are a business in the EU in a similar situation, you can exert your right to deduct VAT even if the time limit has expired before the tax is corrected. However, all formal requirements must be met and there should be no evidence of tax evasion or fraudulent activities.