The right to a VAT refund from the tax office when it cannot be recovered from the supplier – another judgment of the CJEU

Does the tax authority have the right to deny the taxpayer the right to deduct input VAT from a transaction that, in its opinion, was not subject to taxation at all? At first glance, it seems obvious that it does – after all, the supplier can correct the invoice in such a scenario, ensuring neutrality for both parties

And what if the supplier has paid the VAT but cannot correct the invoice due to the expiry of the limitation period? Here we can also say that everything is fine – the limitation period is a double-edged sword and “it just happens”. After all, the taxpayer is to blame for incorrectly classifying the transaction as taxable.

But what if the taxpayer has taxed the transaction and the authorities confirmed that such classification was correct, only to change their minds after the limitation period had expired? This is where doubts may arise. The CJEU faced a similar challenge in its judgment of 13^th March 2025, ref. C-640/23, Greentech.

Facts

The case concerned the Romanian company Greentech, that purchased part of the assets of a related entity Greenfiber. The transaction was classified as a sale subject to VAT, and Greenfiber issued an invoice and paid the output tax. At the turn of 2015/2016, a tax audit was conducted against the supplier, which ended with the issuance of a decision in which the tax authority confirmed the correct classification and taxation of the transaction.

Shortly afterwards, the same authority initiated another tax audit against Greentech and issued a completely different decision, i.e. it decided that the sale of assets was de facto a sale of an enterprise, not subject to VAT. The authority denied the purchaser the right to deduct input tax resulting from the purchase invoice. This decision was then challenged and it only became final after the judgment of the Supreme Court of Cassation in November 2021, i.e. at a time when the right to correct the output VAT by Greenfiber had already been time-barred for several months. As a result, Greentech was saddled with the economic burden of VAT.

Greentech filed an application for reopening of the proceedings. The Romanian Supreme Court of Cassation, hearing the application, stayed the proceedings in order to ask the CJEU whether the denial of the right to deduct in such a situation is consistent with the principles of neutrality, legal certainty and protection of legitimate expectations contained in the VAT Directive.

CJEU ruling

The CJEU stressed that Member States should provide taxpayers with mechanisms to correct all taxes that have been settled by mistake, provided that the supplier did not act in bad faith. Such a taxpayer should have the right to refund the overpaid tax from the state, and the purchaser should have the right to refund it from the supplier through a civil action. However, in a situation, when recovering unduly declared VAT from the supplier is impossible or excessively difficult, then the role of the Member State is to create such instruments that will allow the purchaser to recover the disputed VAT directly from the tax authorities. Importantly, this is a separate procedure from the right to deduct, which in this situation does not apply due to the fact that it is impossible to “deduct” tax that was not “output” at all.

Conclusions

The CJEU has (not for the first time) confirmed a thesis that does not seem controversial – the right to deduct VAT is intended to completely free an entrepreneur from the economic burden of the goods and services tax, but only in relation to transactions that are subject to it. When a transaction is reclassified as not subject to VAT, the taxpayer cannot invoke the right to deduct.

The second of the CJEU’s theses, however, touches on an issue that the Polish tax authorities look at quite differently, namely – how to implement the principle of neutrality if the output VAT has become time-barred? The Polish tax authority would probably state that the limitation period is the final argument and would rather not see a chance to recover “VAT” that is not VAT anymore and has become time-barred in the meantime.

The Greentech case is not the first time that the CJEU has ruled to extend VAT neutrality beyond the limits of the right to deduct. In several previous judgments (e.g. of 13^th October 2022, ref. C-397/21 Humda, or of 11^th April 2019, ref. C-691/17 PORR Építési Kft.), the CJEU has already stated that there are situations in which a taxpayer should be entitled to request a refund of VAT incorrectly invoiced directly from the tax authority if its refund from the supplier is impossible or excessively difficult. It is obligation of the Member States to provide procedural means for the effective submission of such a request.

After the Humda judgment (2022), it seemed that a new option would open up for Polish taxpayers to recover unduly paid VAT directly from the state in a situation where another path is impossible for various reasons (e.g. liquidation of the supplier or limitation of their tax liabilities). However, little has changed in the Polish tax law reality over the last 3 years. It is all the more worth following the echoes of the Greentech judgment and its impact on the domestic arena.