Incorrectly mischarged supplier VAT not deductible

Tue 15th Apr 2014

The European Court of Justice last month confirmed the incorrectly mischarged input VAT is not deductible. This is important for companies as it underlines the need to check the VAT calculations on their vendor’s invoiced.

Romanian VAT reverse charge

The case (C-424/12) concerned SC Fatorie which had received a VAT invoice with VAT from a supplier. However, the supplier should have applied the reverse charge. SC Fatorie did not identify this, paid the VAT and then included it as a deduction in its Romanian VAT return.

The Romanian tax authorities challenged this, claiming SC Fatorie should have verified the deduction. The European Court, which is the highest court of appeal for European legal issues (including VAT), held in favour of the Romanian tax office and a fine was appropriate. It also held that the fact that SC Fatorie’s supplier had subsequently gone bust did not affect the position.

This ruling underlines the principle the companies must review and check the VAT calculations on their suppliers’ invoices as they may lose the right to deduct and create a cash flow risk.

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