The European Court of Justice stated that taxpayer may ask for refund of excess VAT within 12 months from ceasing economic activity.
The bench of S. Rodin (President of the Chamber), O. Spineanu-Matei (Rapporteur) and N. Fenger observed that a limitation period of 12 months from the period in which the excess VAT arose, as stated in the order for reference, does not seem liable to make it impossible or excessively difficult in practice for a taxable person or a former taxable person to assert his or her or its right to a refund of excess VAT. The same conclusion applies a fortiori in the case of a limitation period of four years.
The bench noted that it is in no way apparent from the order for reference that Modexel sought to assert its right to a refund of excess VAT, declared when it ceased its economic activity, before the end of that 12-month period, and encountered difficulties in that regard. In those circumstances, it must be held that, subject to verification by the referring court, the exercise by Modexel of its right to a refund of VAT was not rendered impossible or excessively difficult in practice.
The Taxable person namely Modexel submitted a declaration of cessation of economic activity with effect from 28 February 2015 and set out a VAT credit in the amount of EUR 12 456.20 in its VAT return for the first quarter of 2015.
On 10 May 2016, Modexel resumed its economic activity. Modexel deducted that VAT credit in its first VAT return after that resumption.The tax authority refused the deduction of that VAT credit, on the ground that Modexel should have requested a refund of that credit within 12 months from the date on which it ceased its economic activity and that, since Modexel had not made such a request, it had forfeited the amount at issue.
The referring court stated that it is uncertain about the interpretation of the concept of ‘following period’ in the first paragraph of Article 183 of the VAT Directive.
The referring court stated that, according to the tax authority, that expression should be understood literally, as referring to the period immediately following, in the calendar, the period in respect of which the VAT credit at issue was declared.
By contrast, according to Modexel, there may be, by reason of the cessation of the economic activity of the undertaking concerned, a time interval between the period in respect of which the VAT credit at issue was declared and the period in which the deduction of that credit is made, after that undertaking has resumed its economic activity.
In those circumstances the Tribunal Administrativo e Fiscal do Funchal (Administrative and Tax Court, Funchal) decided to stay the proceedings and to refer the 2 questions to the Court of Justice for a preliminary ruling.
Firstly, must the expression “the following period” in Article 183 of the VAT Directive be interpreted as referring literally to the period which immediately follows in the calendar year.
Secondly, if the answer is in the negative, where an undertaking ceases its activity and subsequently recommences that activity, with a period of [approximately] 15 months having elapsed between those two points in time, is that undertaking entitled to deduct the amount of the excess which it [declared] when it ceased its activity in the first assessment that it files after recommencing its activity.
The court noted that when it ceased its economic activity, Modexel had declared excess VAT which it sought to deduct from the VAT that it was liable to pay in the first return made after it resumed its economic activity.
It was further noted that the tax authority corrected that tax return, taking the view that it was not appropriate to carry that excess forward because Modexel should have requested a refund within 12 months from the date on which it ceased its economic activity.
The bench stated that it should be recalled, as a preliminary point, that, according to settled case-law, the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by EU legislation.
The court held that the first paragraph of Article 183 of the VAT Directive must be interpreted as not precluding national legislation which provides that, where a taxable person ceases economic activity, that person may not carry excess VAT, declared at the time of that cessation of activity, forward to a following period and may recover that amount only by requesting a refund within 12 months from the date on which that activity ceased, provided that the principles of equivalence and effectiveness are observed.
Case Details
Case Title: Modexel – Consultores e Serviços SA V Autoridade Tributária e Assuntos Fiscais da Região Autónoma da Madeira
Case No.: C-680/23
Date: 5 December 2024
Counsel For Petitioner: T. Ćapeta
Counsel For Respondent: Portuguese Government, by P. Barros da Costa, C. Bento and A. Rodrigues; European Commission, by J. Jokubauskaitė and L. Santiago de Albuquerque, acting as Agents
