Using the Wrong VAT ID? CJEU Confirms Double Exposure—But No Double Taxation (Case judgement T-638/22)

As a general rule, where a business purchases goods in one Member State and they are dispatched to another, the purchaser provides the supplier with a VAT identification number issued by the Member State of arrival, allowing the supplier to treat the supply as VAT-exempt. If, however, a VAT identification number from a different Member State is used, the transaction may also be taxed in the Member State that issued that number, resulting in output VAT becoming due without a corresponding right to deduct input VAT, until it is demonstrated that the intra-Community acquisition has been properly declared in the Member State of arrival.

Background of the Case

Austrian company “D GmbH” purchased goods from a local Austrian supplier which were dispatched to a second EU Member State. The supplier however was provided with his customers Austrian VAT ID number, and so he charged Austrian VAT, which D GmbH in turn deducted as input VAT (2011-2015), despite the fact that the supply should have been VAT exempt within the framework of an intra-Community dispatch of goods.

When D GmbH was audited, the Austrian VAT Authorities determined that input VAT had been incorrectly deducted for the 4 years in question, since it was considered that the goods had left Austria for another EU Member State. Furthermore, due to the fact that D GmbH had used its Austrian VAT ID, the Authorities deemed that acquisition VAT was due in Austria under Article 41, unless D GmbH could demonstrate that the acquisition had been declared in another Member State. Consequently, this resulted in a denial of input VAT deduction on the incorrectly charged domestic VAT which D GmbH had already paid, plus an assessment of output VAT on the acquisition, leading to double taxation.

D GmbH disputed this approach and so the case was escalated.

Questions Referred to the Court

The Austrian national court asked the CJEU to clarify the following:

• Do Articles 40, 41 and 203 of the VAT Directive, together with the principles of proportionality and fiscal neutrality, prevent a Member State from treating an intra-Community acquisition as taking place in that State solely because its VAT identification number was used, until the taxpayer proves that the acquisition was taxed in the Member State of arrival—even where the underlying supply was VAT-exempt but VAT was nevertheless incorrectly charged on the invoice?
• If the answer to the first question is yes, does correcting the invoice to remove incorrectly charged VAT result in an intra-Community acquisition under Article 41 of the VAT Directive, and if so, when is that acquisition considered to take place?

Outcome of the Case

The CJEU concluded that the output VAT charge on the intra-Community acquisition was justified, since an incorrect VAT ID had been used, since the purpose of Article 41 is to ensure that such a transaction is taxed at least once. A separate VAT liability arose under Article 203, but this does not change the fact that the supply was infact VAT exempt. The VAT was due simply because it had been invoiced, but this did not impact the actual VAT treatment. Therefore, Articles 41 and 203 may both be applied without negatively impacting the principle of neutrality, since incorrectly charged VAT can be corrected without time limitation, meaning that the economic burden is not definitive, but rather exists only until such time as the transactions are correctly treated and reported.

Considerations for businesses

Taxpayers making intra-Community acquisitions should ensure that the correct VAT identification number of the Member State of arrival is used, as using the wrong VAT ID can trigger additional VAT liabilities in another Member State under Article 41. It is essential to properly report and declare the intra-Community acquisition in the Member State where the goods arrive, since failure to do so may result in taxation in multiple jurisdictions.

Businesses should also carefully review supplier invoices to ensure that VAT is not incorrectly charged on intra-Community supplies, as such VAT becomes due under Article 203 and may not be immediately recoverable. Where errors occur, taxpayers should act promptly to correct invoices and reclaim wrongly charged VAT, noting that although corrections are possible, they may create temporary cash-flow disadvantages.

Finally, the case highlights the importance of robust internal controls and communication between procurement, logistics, and tax functions, to ensure that cross-border transactions are structured and reported correctly from the outset and to avoid unnecessary VAT exposure.

If your business has been similarly impacted from using the incorrect VAT ID number on intra-Community transactions, or you wish to discuss your sales flows with one of our experts, please don’t hesitate to contact us.