A recent decision from the Court of Justice of the European Union (“CJEU”) – Sea Chefs Cruise Services (C-13318) (“Sea Chefs”), considered whether this German company remained entitled to a refund of French VAT, which it had incurred in the course of its business.

The CJEU considered whether the French VAT authorities were within their rights in rejecting the claim for €40,054. This was on the basis that Sea Chefs had not provided a response to the French authorities’ request for additional information relating to the claim, within the allotted time of one month.

The time limits for submitting directive claims are strict. However, this strict approach does not apply to subsequent correspondence.

The appeal was allowed.

The background

If a business incurs VAT on expenditure in a member state where it is not established and makes no supplies, the electronic cross-border refund system enables the business to recover that VAT directly from that member state. The previous system, known as the Eight VAT Directive Refund procedure, was a lengthy, burdensome and paper-based system. With effect from 1 January 2010, reforms were introduced by the EU such that an electronic system was to be operated.

Under this system, the Member State of Establishment is defined as being the member state in which a business is established. The Member State of Refund is defined as being the member state where the foreign VAT has been incurred.

Prior to a business being entitled to a refund of foreign VAT, various conditions need to be met. One relates to the time limits for making such an application. Properly completed applications must be submitted to the Member State of Establishment by 30 September of the calendar year at the latest, following the year when the expenditure had been incurred.

There are further rules regarding time limits required for processing applications. Under one such limit, if additional information is requested by the Member State of Refund then the request must be acted upon by the person to whom the request is made, within one month of receiving the request. Such a request can be made from the business which has applied for the refund, from said other person or from the authorities of the Member State of Establishment.

The facts

Sea Chefs, a company established in Germany, sought reimbursement of French VAT incurred in calendar year 2014, through the electronic cross-border refund system made available in its Member State of Establishment.

The French tax authorities (“Tax Administration”) sent an email request for additional information to Sea Chefs. In the absence of a response within the time limit of one month, the Tax Administration rejected the application for reimbursement made by Sea Chefs.

The Tax Administration considered that this appeal was inadmissible in light of Sea Chefs’ failure to comply with the one-month time limit.

Accordingly, the question that was put before the CJEU was whether this time limit for the provision of additional information must be adhered to.

The decision

The CJEU explained that it is a fundamental right of the VAT system that every taxable person established in a member state be entitled to a refund of VAT due or paid, in the course of all its economic activities.  This is an integral part of the VAT mechanism and cannot, in principle, be limited.

With regard to a refund of VAT incurred in a member state, the directive firstly states that the refund application shall be lodged with the Member State of Establishment “not later” than 30 September each year. Accordingly, where a business does not adhere to this limitation period, it loses its right to seek a refund of any VAT incurred for the earlier calendar year.

As the relevant article which considers the request to be made by a Member State of Refund for additional information following the submission of the claim by 30 September, the same wording is not used.

Furthermore, the application for the refund must be made by the business. However, the additional information may be solicited from a person other than the business or from the authorities of the Member State of Establishment, by the Member State of Refund. As the business no longer retains control over when the response is to be provided, this one-month period cannot constitute a mandatory time limit, such that non-compliance results in forfeiture of the right to a refund.

Accordingly, it was decided that Sea Chefs should be paid.

Who is potentially affected?

This judgement of the CJEU applies to any business which has been denied the right to present requested information where the one-month period has been exceeded from a member state, following a refund claim having been submitted within time.

This is a helpful reminder of the rules with regards to the right of businesses to recover VAT which may have been incurred in other member states. Where that member state has requested certain additional information (e.g. tax invoices above a certain limit) which was not provided within the permitted timescale, this judgement provides an opportunity to revisit the claim.

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