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The refund of interest for undue income, when it is due to a taxpayer error, in VAT matters

Recently, the Fourth Chamber of the Court of Justice of the European Union ( CJEU ) has issued a ruling, dated February 22, 2024, in case C-674/22, in which it resolves a request for a preliminary ruling on the interpretation of Union law, pursuant to Article 267 TFEU, by the Rechtbank Gelderland (Court of First Instance, Gelderland, Netherlands), in the proceedings between the Municipality of Dinkelland, (Netherlands) and the Ontvanger van de Belastingdienst/Grote ondernemingen, kantoor Zwolle (Tax Collection Authority/Large Businesses, Zwolle office, Netherlands), in relation to the latter administration's refusal to pay compensatory interest to the Dinkelland City Council on an amount of VAT that was returned to it.

The reference judgment delves into the interpretation of certain provisions of Council Directive 2006/112/EC, of ​​November 28, 2006, relating to the common system of VAT , light of the Case Law relating to the fact whether, in the context of the case at hand, Union Law obliges a taxable person to pay interest, from the day of payment of an amount of VAT that has subsequently been refunded, as requested by the City Council, or if, as maintained by the Tax Administration that made the refund requested in this case, the calculation of interest on the refunded amount is correct , in accordance with its internal regulations, for a period that began eight weeks after receipt of the refund request , and ended fourteen days after notification of the refund resolution.

The causes that motivated the request for the return of undue income in the case analyzed, and on the nature of which the CJEU ruled, are, on the one hand (i) errors committed in accounting, and on the other (ii) a change in the accounting standards applicable to municipal corporations.

The court that asked the preliminary ruling has doubts, essentially, as to whether the amount returned in the present case was actually received in contravention of Union Law, a necessary presumption established by jurisprudence to consider the calculation of compensatory interest from the day of payment. .  The consulting court is clear that the Tax Administration cannot be held responsible for the errors made in the accounting of the Dinkelland City Council, however, from paragraph 56 of the ruling of April 28, 2022, Gräfendorfer Geflügel- und Tiefkühlfeinkost Produktions and others (C‑415/20, C‑419/20 and C‑427/20, EU:C:2022:306), it follows that the obligation to pay interest arises from the impossibility of disposing of the amount unduly paid for a certain period of time, regardless of the possible liability of the taxpayer.

As regards the modification of the distribution key for the VAT input and paid, the referring court also has doubts as to whether, taking into account that the refund of the amount of VAT derived from this modification is essentially the result of the change in the accounting rules applicable to municipal corporations, it could also be considered that the impossibility of disposing of said amount derives from a violation of Union Law.

Well, the CJEU begins by remembering, in the Judgment that we analyze, that the Jurisprudence, indeed, and as stated by the jurisdictional body that raises the question, starts at this point from the idea that where a Member State has collected taxes in breach of the rules of Union law, individuals are entitled to restitution not only of the tax unduly collected, but also of the amounts paid to or retained by that State in direct relation to said tax (judgments of December 12, 2006, Test Claimants in the FII Group Litigation, C‑446/04, EU:C:2006:774, paragraph 205, and 23 April 2020, Sole-Mizo and Dalmandi Mezőgazdasági, C‑13/18 and C‑126/18, EU:C:2020:292, paragraph 35). Therefore, it is necessary to determine, for the two substantive questions raised in this specific case mentioned above, whether it should be considered that this returned amount was "collected in contravention of Union Law", in the sense established by the aforementioned Community jurisprudence.

  1. On the one hand, the CJEU rules that if a taxable person invoices a VAT by mistake, the latter is collected without violating Union regulations, but under Article 203 of the VAT Directive, which provides that any person who mentions this tax on an invoice will be liable for VAT ( for all, ruling of October 13, 2022, HUMDA, C‑397/21, EU:C:2022:790,). Similarly, pursuant to Article 250(1) of the VAT Directive, taxable persons must submit a VAT declaration in which includes all the necessary data to determine the amount of tax payable and the deductions to be made. Therefore, the Tax Administration does not contravene Union Law when it collects an amount of VAT in accordance with that declaration, even if the taxable person, for reasons attributable only to him, has not entered in said declaration the data necessary to determine the scope of your right to deduction established in article 168 of the aforementioned Directive, so that you have not exercised this right. Therefore, an amount of VAT cannot be considered to have been collected "in contravention of Union law" because the taxable person has mistakenly failed to exercise his right to deduction.
  2. On the other hand, an amount of VAT that has been returned due to the modification, with retroactive effect, of the rules for calculating the corresponding VAT deductible to the general expenses of a taxable person, can only be considered as a tax that was collected 'in contravention of Union law', within the meaning of the aforementioned case law, if the initial rules of that calculation, according to which it was collected the aforementioned amount, are incompatible with Union Law, due to the applicable national regulations, or to any requirement demanded by the Tax Administration.

The CJEU concludes, definitively, that Union law must be interpreted in the sense that it does not require a taxable person to pay interest counting from the payment of an amount of VAT which is subsequently returned by the Tax Administration, when this refund is the result, in part, of the finding that the taxable person, due to errors made in his accounting, did not fully exercise his right to the deduction of VAT borne and paid in the tax periods in question and, in part, a modification with retroactive effects of the rules for calculating VAT deductible corresponding to the general expenses of the aforementioned taxpayer if said rules are established under the entire responsibility of the latter.

You can consult the full text of the ruling at the following link: