Case P-GmbH for a second time:  The ECJ on excessive VAT to final customers and taxable persons

P operated an indoor playground in Austria and applied a 20% VAT rate to its services, when the correct rate was 13%. Most of P’s clients were final consumers who were not entitled to deduct input VAT. After realising the error, P adjusted its VAT return so the excess VAT could be credited by the Austrian tax authorities. The authorities, however, refused this adjustment.

In its first judgment on 08 December 2022, the ECJ held that a supplier is not liable under Article 203 for excess VAT invoiced to final consumers if there is no risk of loss of tax revenue. However, since it could not be ruled out that some customers might have deducted VAT, the Austrian Federal Finance Court (BFG) estimated that approximately 0.5% of P’s turnover could be at risk of creating a VAT liability. This prompted the Austrian tax authority to appeal, and the Austrian Supreme Administrative Court (VwGH) submitted additional questions to the ECJ for clarification.

ECJ clarifications:

Liability must be assessed on an invoice-by-invoice basis. Invoices issued to non-taxable persons, defined as final consumers, do not trigger VAT liability, even if similar invoices are issued to taxable persons.

The term “final consumer” includes only non-taxable persons who have no right to deduct input VAT. Taxable persons who, in individual cases, cannot deduct input VAT are not considered final consumers for this purpose.

In cases of mass transactions, individual assessment of each invoice is often impractical. Estimates may be used if based on objective and reliable data, including statistical information about the customer base and other relevant indicators. Taxpayers must be given the opportunity to contest the estimate before any adverse decision is taken. The standard of proof is moderate, and taxpayers must retain the opportunity to correct any overpaid VAT.

Key points of the ruling:

A supplier who invoices VAT at an incorrect rate is not liable for the excess VAT invoiced to final consumers, even if it supplies similar services to taxable persons.

Only non-taxable persons qualify as “final consumers” under Article 203. Taxable persons who cannot deduct VAT in specific circumstances are excluded.

Under simplified invoicing rules (Article 238), authorities or courts may estimate the proportion of invoices giving rise to VAT liability, provided that all relevant circumstances are considered and the taxpayer can contest the estimate.

This ruling clarifies the application of Article 203, confirms the distinction between taxable and non-taxable customers, and provides guidance on estimation procedures in mass invoicing cases, ensuring taxpayers are not unfairly deprived of correcting overpaid VAT.

---

In 1987, Brigitte Jakoby started collaborating with her husband Eugen Jakoby, also a German chartered accountant and German certified tax advisor. Since 1996, she has been a senior partner at Jakoby Dr. Baumhof.