Where is VAT incorrectly mentioned on invoice due and how can you get it reimbursed?

On 18 June 2009 the European Court of Justice (ECJ) ruled in the ‘Stadeco case’ about the possibility to reclaim VAT incorrectly mentioned on an invoice (in the Netherlands: ‘Art. 37-btw’). In some cases, the requirements of the Dutch tax authority seem to be too strict.

The invoice is considered a cornerstone of the VAT system and if a business incorrectly mentions VAT on an invoice – even accidentally – this VAT has to be paid to the tax authority. Specific rules and requirements exist for reimbursement of this VAT. These rules are partially based on EU case law regarding elimination of the risk of loss of tax revenues in case this VAT is deducted by the recipient of the invoice as well as reimbursed to the supplier.
 
Background
Stadeco is a company established in the Netherlands which is in the business of renting, constructing and dismantling stands for trade fairs and exhibitions. EVD, a part of the Dutch Ministry of Economic Affairs, was one of its clients. EVD, as a public body, has no right to deduct input VAT. The services provided to EVD were physically carried out in Germany and third countries.
 
On its invoices to EVD, Stadeco mentioned Dutch VAT. The Dutch tax authority informed Stadeco that no Dutch VAT was due and Stadeco subsequently requested reimbursement of the overpaid VAT. The Dutch tax authority agreed on repayment of this VAT on the condition that Stadeco would correct the relevant invoices. Stadeco sent the tax authority a copy of a credit note to that effect.
 
However, during an inspection the Dutch tax authority established that Stadeco had not actually issued the credit note to EVD, nor had Stadeco made any repayment to EVD. For this reason, the tax authority imposed an additional VAT assessment for the reimbursed VAT amount to Stadeco.
 
Questions referred
The Dutch Supreme Court, not sure about the answer to a number of questions, referred the following preliminary questions to the ECJ:

1. Must businesses pay VAT that is mentioned on invoices incorrectly to their local tax authority if, based on the ‘place of supply’-rules these supplies are not taxable locally?
2. Is the tax authority in this specific case allowed to require that businesses issue a corrected invoice?

Ruling ECJ
The ECJ ruled that VAT mentioned on an invoice where it should not be on the invoice, must be paid to the tax authority anyway. In this respect, it is not relevant whether the place of supply of the underlying transaction is in another country. That (other) country is, however, entitled to actually collect that VAT since that member state runs the risk of loss of tax revenue because the customers/recipients of the invoice could apply for a refund in that country too. As an example: if you issue an invoice to your customer accidently mentioning French VAT, the French tax authority, and not the Dutch tax authority, has the right to collect that VAT. After all, the French tax authority runs the risk that your client deducts this VAT and that you ask for reimbursement as well.
 
To eliminate that risk of loss of tax revenue, the ECJ decided that, in answer to the second question, member states are allowed to require that businesses issue corrected invoices to their clients.
 
The ECJ further decided that another requirement, i.e. that the reimbursed VAT is actually repaid by the business to its client, can only be imposed by the Dutch tax authority in case of unjust enrichment of the business. The ECJ indicated that, in order to determine the existence and degree of unjust enrichment, all relevant factors should be taken into account, e.g. the way the remuneration is defined in the contracts.
 
Practical points

1. If you issue an invoice on which you charge Dutch VAT to your client where you should not have done this, you will have to pay this VAT to the Dutch tax authority anyway.
2. You can get a reimbursement of this VAT if you meet certain requirements. You will in any case have to issue a corrected invoice to your client.
3. It seems that the Dutch tax authority can only require that you repay the VAT they reimbursed to your client in case of unjust enrichment of your business. According to the ECJ, this could be the case if e.g. the contracts relate to basic amounts of remuneration for the supplies increased, where appropriate, by the applicable VAT.
4. If you issue an invoice on which you charge your customer foreign VAT where you should not have done this, the Dutch tax authority is not allowed to collect this VAT. Only the relevant foreign tax authority is. The possible reimbursement of this VAT depends on the relevant local rules applicable to such reimbursements.
5. The Dutch Supreme Court decided some time ago that VAT charged to private individuals where you should not have done this, does not have to be paid to the Dutch tax authority. If you have paid such VAT to the tax authority anyway, you are entitled to a reimbursement.

Source: ECJ, 18 June 2009, C-566/07 (Stadeco BV). 

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