CJEU: the contract (exceptionally) can be an invoice

A contract after the conclusion of which the parties have not issued an invoice may be regarded as an invoice if it contains all the information necessary for the tax authorities of a Member State to establish whether the substantive conditions for the right to deduct VAT are satisfied in a given case. This follows from the judgment of the CJEU in case C-235/21 Raiffeisen Leasing.

On September 29, 2022, the Court of Justice of the European Union ruled that a contract of sale-and-lease back, after the conclusion of which the parties did not issue an invoice, can be regarded as an invoice, within the meaning of Article 203 of the VAT Directive, where that contract contains all the information necessary to enable the tax authorities of a Member State to establish whether the material conditions for the right to deduct value added tax are met in a given case.

Two important conditions

The case examined by the Court concerned a sale-and-lease back contract. However, conclusions resulting from the judgment may potentially apply to any type of contract concluded for the supply of goods or services. They may be also applicable to any document in which the amount of VAT is indicated.

Under the judgment a document may be regarded as an invoice if two conditions are met.

The document must indicate the amount of VAT. At the same time, if the contract indicates the amount of VAT, but without specifying the tax rate, it is important whether such a rate can be derived from the contract.
The document must contain “invoicing data” specified by the VAT Directive necessary for the tax authorities to establish whether the material conditions for the right to deduct VAT are met.

Such a document should therefore contain the elements provided for by law for such a document as an invoice. This means that in this respect you should refer to the elements of the invoice listed in Article 226 of the VAT Directive (and from the Polish perspective, the corresponding Article 106e of the VAT Act).

The exception, not the rule

In the discussed judgment, the Court did not specify what should be understood by the substantive conditions for the right to deduct. However, this issue has already been the subject of CJEU judgments many times before. For example, in the judgment of 11 November 2021 in case C-281/20 Ferimet, it was stated: “As regards the material conditions, it is apparent from Article 168(a) of Directive 2006/112 that, in order for that right to be available, first, the person concerned must be a ‘taxable person’ within the meaning of that directive. Secondly, the goods or services relied on as the basis for claiming the right of deduction must be supplied by another taxable person as inputs and those goods or services must be used by the taxable person for the purposes of his or her own taxed output transactions.’

With regard to the fulfillment of the material conditions for the right to deduct, reference should therefore be made to Article 168(a) of the VAT Directive and it should be examined whether, firstly, the supplier and the buyer are taxable persons, secondly, whether there has been a supply of goods or services and, thirdly, whether the goods or services purchased by the buyer are used for his taxable activities.

The Court has not specified material conditions for the right to deduct. However, this issue has been the subject of its judgments in the past. It follows from them that in order to assess whether the substantive conditions for the right to deduct are met, three elements must be examined: whether the supplier and the purchaser are taxable persons, whether the goods have been supplied or services rendered and whether the purchased goods or services are used for the purposes of taxable transactions carried out by the buyer.

As far as the practical consequences of the judgment are concerned, it should be stated that as long as the contract is not performed – i.e. the seller is not obliged to issue an invoice – the CJEU judgment should not apply. It leads to the conclusion that only executed contracts (in the performance of which the delivery of goods takes place or the performance of a service or an advance payment is received) or other document may exceptionally becomes an invoice. However, such a possibility should be considered – as a rule – from the side of the purchaser, who cannot exercise his right to deduct the input tax, despite the fulfillment of the material conditions, as the formal conditions are not met (no invoice is issued by the seller).

To sum up, the CJEU judgment in case C-235/21 Raiffeisen Leasing shows that for a contract to be considered an invoice, the following conditions must be met jointly:

as a result of the performance of the contract, an activity subject to VAT was performed (goods were delivered, a service was performed, an advance payment was made), which should be documented with an invoice,
the invoice was not issued by the seller, despite the existence of such an obligation,
the contract contains the required elements for the invoice, in particular the amount of VAT,
the contract contains all the information necessary for the tax authorities of a Member State to establish whether the material conditions for the right to deduct value added tax are met in a given case (in particular, the data in the contract should allow to verify the tax status of the seller and the buyer).

What about proforma invoices?

It is difficult to predict whether this judgment will change the approach to other documents, such as proforma invoices, which, although they contain statutory elements of an invoice, are not recognized as such. A day before the CJEU judgment was announced, the Voivodship Administrative Court in Gliwice ruled that the entity that paid the advance payment based on a proforma invoice is not entitled to deduct input tax (judgment of September 28, 2022, reference number I SA/Gl 810/22). Assuming that this judgment will be appealed, it is worth to follow the further developments of this case. This may be the first cassation appeal considered by the Supreme Administrative Court following the discussed judgment of the CJEU.

From the sellers’ perspective

From the sellers’ point of view, the judgment of the CJEU in case C-235/21 Raiffeisen Leasing should not mean that all contracts that contain the amount of VAT and the basic elements of the invoice automatically become “invoices”. As the Court pointed out, it applies to a situation in which the substantive conditions for the right to deduct input tax on the buyer’s side have been met, and the invoice should have been issued by the seller, but it was not.

It should also be underlined that, as a rule, the delivery of goods, provision of services and receipt of advance payments create a tax point (and except for situations where the tax point arises on special terms on the date of issuing the invoice) failure to issue an invoice does not release the seller from the obligation to report such activities for VAT purposes.

Author: Joanna Pęczek-Czerwińska, Tax Advisor