On May 24, 2023, the European Court of Justice (ECJ) issued its order in the case C-690/22 (Shortcut). This case revolves around the interpretation of certain articles in the EU VAT Directive and the right of deduction for taxable persons. The ECJ’s order provides clarity on the requirements for issuing invoices and the scope and nature of services rendered.
According to Article 178(a) of the EU VAT Directive, in order to exercise the right of deduction, a taxable person must hold an invoice that is drawn up in accordance with the specific sections of the Directive. This means that the invoice must contain the necessary particulars and information as specified in the Directive.
Furthermore, Article 219 states that any document or message that amends and refers specifically and unambiguously to the initial invoice shall be treated as an invoice. This allows for flexibility in the invoicing process, as long as the amended document clearly relates to the original invoice.
Article 220 outlines the obligation for every taxable person to issue an invoice for certain transactions, such as supplies of goods or services to another taxable person or a non-taxable legal person. It also covers payments made on account before the completion of the supply of goods or provision of services.
In accordance with Article 226, invoices issued for VAT purposes must include specific details, such as the quantity and nature of the goods supplied or the extent and nature of the services rendered. This ensures transparency and accuracy in the invoicing process.
Additionally, Article 273 allows Member States to lay down other obligations to ensure the correct collection of VAT and prevent fraud. However, these obligations must comply with equal treatment of domestic and cross-border transactions and should not impose additional invoicing requirements beyond those specified in the Directive.
The case at hand involves Shortcut, a company incorporated under Portuguese law, that carries out computer consultancy activities and is subject to VAT in Portugal. Following an audit, the tax authorities concluded that four invoices issued by companies providing services to Shortcut were based on simulated transactions, and therefore, the VAT deducted by Shortcut was deemed unduly deducted.
The tax authorities also found that the invoices did not comply with the formal requirements laid down in Article 36(5)(b) of the Portuguese VAT Code due to their generic description of the services provided. As a result, the tax authorities corrected the VAT corresponding to these invoices and issued additional assessments and interest charges.
Shortcut challenged these liquidations before the Administrative and Tax Court in Porto, which ruled that the evidence gathered by the tax authorities did not sufficiently prove that the transactions were simulated. However, the court maintained the liquidations based on the failure to comply with the formal requirements for the description of services.
Shortcut appealed this decision to the Central Administrative Court of the North, which upheld the ruling, stating that the invoices did not meet the formalities for describing the services provided. Shortcut then brought an appeal before the Supreme Administrative Court, arguing that the denial of VAT deduction based solely on formal criteria goes against the principle of VAT neutrality.
The case now rests with the ECJ, which will provide a final ruling on the matter. This decision will have implications for the interpretation and application of the EU VAT Directive, particularly regarding the right of deduction and the formal requirements for invoices.
In conclusion, the ECJ’s order in the case C-690/22 (Shortcut) clarifies the conditions for exercising the right of deduction, the obligations for issuing invoices, and the necessary details to be included on invoices for VAT purposes. The case highlights the importance of compliance with these requirements and the potential consequences for VAT deductions if they are not met. The final ruling from the ECJ will provide further guidance on these matters and their impact on taxable persons in the EU.
