29 May 2014
SC Fatorie SRL Case C-424/12 is a Romanian referral upon which the Court of Justice of the European Union (CJEU) has recently ruled. The problem arose because a supplier had invoiced Fatorie with Romanian VAT, despite the services being supplied from outside Romania. The correct way to account for Romanian VAT on the transaction would have been for Fatorie to apply the reverse charge procedure, paying and reclaiming the VAT by set-off.
As the supplier went into liquidation without paying over the Romanian VAT to the tax authorities, they assessed Fatorie for the VAT it reclaimed on its VAT return. The CJEU has previously ruled that VAT incorrectly charged is not recoverable, but here the VAT was correctly due. The only question was the identity of the person liable to pay it to the tax authority. In that sense the CJEU considered it was still incorrectly charged and therefore not recoverable.
The CJEU also confirmed the right of the tax authority to charge penalty and interest to Fatorie. This is a clear warning to all recipients of an invoice which incorrectly charges VAT where it should be paid under the reverse charge arrangement. In relation to EU claims costs, it could well be that following the same principles a tax authority may insist on collecting the tax from the recipient (EU) insurer under the reverse charge as well as the recipient paying it over to the supplier – a double charge. The lesson is to keep a careful eye on any invoices from overseas suppliers to make sure no VAT is charged when the reverse charge procedure should be used.
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