27 June 2019
What should you do when you have received a credit note from a supplier, but do not receive the reimbursement of the credited amount due to liquidity problems of the supplier? According to a recent decision of the European Court of Justice (C-691/17), the VAT on this credit note should not be a cost to you.
Upon receipt of a credit note, you are in principle obliged to refund the VAT you have deducted on the basis of the original invoice, regardless whether you have received the reimbursement of this VAT amount from the supplier. The VAT on the initial purchase invoice was possibly not deductible in the first place, e.g. if it was incorrectly charged. As a result, if you do not receive the reimbursement of the VAT from the supplier, this VAT amount can be cost to you.
The Court of Justice accepts that in such a case the client may need to recover this VAT amount directly from the supplier, if necessary by bringing a civil law action against that supplier.
However, when the reimbursement of the VAT by the supplier to the client is impossible or extremely difficult (in particular in case of insolvency of that supplier), the principle of effectiveness requires that the client should be able to address its application for the reimbursement to the tax authorities directly.
This implies that you should be allowed to regularise the VAT in your favour if you can prove the insolvency of the supplier (similar to what is the case for invoices that are unpaid due to the bankruptcy of the client).