Taxpayer with the right to adjust consumer sales VAT rate

By the judgment of March 21^st, 2023 (ref. C-606/22, Director of the Tax Administration Chamber in Bydgoszcz), the CJEU granted the taxpayer the right to correct VAT resulting from the application of an excessive VAT rate on retail sales documented with fiscal receipts, provided that this does not result in unjust enrichment. Unfortunately, the Court’s conclusion is not clear-cut, as it does not indicate clear criteria for assessing the occurrence of unjust enrichment, as in the Advocate General’s opinion.

Incorrect VAT rate on the receipt

The appellant in this case was a Polish company providing admission services to recreational facilities for individuals. The company applied a 23% VAT rate to the services provided. The rate was supported by the tax authorities’ opinion at the time. When in 2016 the authorities changed their position and determined that the services should be subject to a reduced rate of 8% VAT, the company submitted VAT returns corrections for certain periods of the years 2012 – 2014, along with a request for an overpayment. The tax authorities refused, citing the fact that the taxpayer did not correct the sales documents, which was not even possible in this situation, as Polish regulations do not provide for the possibility of correcting sales values documented on a fiscal cash register at all. Moreover – according to the authorities – if the company obtained a refund of the overpaid VAT, it would be unjustly enriched.

CJEU’s position

When the case reached the Supreme Administrative Court (NSA), it asked the CJEU whether such decisions of the Polish tax authorities were in line with Directive 2006/112/EC and the principles of the EU VAT system.

The CJEU stated that the practice of generally denying the right to correct VAT rate solely because the sale was not documented with VAT invoices, violates the principle of effectiveness. Correction is indeed possible if all transaction data is contained in the memory of the cash register. This practice also violates the principles of neutrality and equal treatment, especially when it disrupts competition between economic operators, where some have applied a higher VAT rate than others, possibly leading to reduced sales volume or profit margins.

The CJEU also emphasized that EU law allows national tax authorities to refuse to reimburse unduly collected taxes only if it would lead to unjust enrichment of the taxpayer. Such unjust enrichment would occur if the financial burden of the unduly collected VAT was completely neutralized. The assessment of the factual circumstances concerning this criterion is up to the national court.

Summary

The CJEU’s recognition of taxpayers’ right to correct overcharged VAT due to the application of an incorrect rate, even in the case of sales documented by receipts, deserves approval. Unfortunately, the Court addressed the issue of unjust enrichment succinctly and left the national courts free to assess this premise. It is for the national court to assess whether the overpaid tax was entirely neutralized, based on all relevant circumstances. The open question remains how courts should examine this and what the neutralization exactly means. Based on the CJEU case law to date, it can be inferred that it is a situation in which the excessive VAT does not result in a reduction of the taxpayer’s margin (e.g., due to the neutralization of its burden, such as through granted subsidies) or competitiveness (e.g., due to the fact that competing entities also applied an excessive rate). The economic analysis of the specific case should be made by the national court in each individual case.