Implementation within Member States of provisions of Council Directive 2006/112/EC (“the EU VAT Directive”) concerning VAT adjustments on unpaid invoices, and specific impact on the telecommunications sector.
ETNO-GSMA Tax Policy Committee Position
The ETNO-GSMA Tax Policy Committee (hereinafter The Committee) has taken the opportunity to consider the correct implementation of Article 90 of the EU VAT Directive within various EU Member States, and would like to articulate the following position.
In the decision of the European Court of Justice (“CJEU”) in Di Maura C-246/16, the CJEU ruled that Member States may not derogate fully from the requirement to allow a reduction of the VAT taxable amount in the case of non-payment of an invoice. It is settled case-law that exceptions must be interpreted strictly. Member States may put in place measures to counteract the inherent uncertainty of the definitive non-payment of an invoice. However, such measures cannot extend beyond that uncertainty, and must conform with the principles of the EU VAT system.
Issues affecting the telecommunications sector
In a number of EU Member States businesses are currently unable to make VAT adjustments on unpaid invoices. In certain cases such an adjustment is completely precluded under national legislation, for instance in B2C business. In other cases the commercial measures reasonably taken to enforce payment are not sufficient to meet the requirements under national legislation that must be completed prior to making a VAT adjustment on an unpaid invoice.
Within the telecommunications sector it is common to incur relatively low value consumer debts. Typically the value of these unpaid invoices, relating to consumer contract customers, is in the range of €10 - €200. Operators complete a range of commercial steps to recover such low value debts. These commercial steps vary depending on the business and the market, but can include amongst others: sending of payment reminders, charging of late payment fees, freezing of service provision, contract termination and the use of external debt collection services.
In many Member States the commercial steps taken by our members are sufficient to allow for a VAT adjustment on the unpaid invoice. However, as noted above, in a number of Member States the debt recovery action taken is not sufficient to meet the requirements set in national legislation to allow for a VAT adjustment (hereinafter “onerous requirements”).
Onerous requirements vary by Member State, but can include amongst others the requirement to: complete judicial proceedings against the customer, complete non-judicial proceedings through a mandated State agency, document customer bankruptcy, and/ or complete insolvency proceedings. We consider requirements to be onerous where completion of the necessary steps would not be economically rational. This is the case where completion of the onerous requirements would result in a cost that is higher than the value of the VAT on the debt itself.
EU principles at hand
The Committee believes that national measures to counteract the inherent uncertainty of the definitive non-payment of an invoice should take into account the following EU principles that have been considered directly relevant by the CJEU within its decisions in Di Maura C-246/16 as well as the more recent judgements in A-PACK CZ C-127/18 and UniCredit Leasing C-242/18.
ETNO-GSMA Position
It is the view of the Committee that the national measures currently in place in certain EU Member States, concerning VAT adjustments on unpaid invoices, are not in line with the EU principles highlighted above. As a consequence, in many cases it is commercially impossible for our members to make such adjustments and to therefore achieve a VAT neutral position. This is especially the case in respect of low value consumer debts, although in many Member States the correction of high value and business debts is also not possible in practice.
In order to achieve a neutral, proportionate and harmonized position, we propose that EU Member States implement national measures in relation to VAT adjustments on unpaid debts that apply the following criteria:
The Committee encourages Member States to review national legislation currently in place in relation to VAT adjustments on unpaid invoices, and where necessary to implement revised national measures that are in line with the five criteria outlined above.
The Committee notes that at the current time there is a significant volume of ongoing litigation in a number of national courts in respect of this issue, including multiple referrals to the CJEU. The Committee considers that it is in the interest of all parties for national measures to be implemented that are in line with EU principles, and that such a position is achieved without the need for court proceedings that are costly and time consuming for all parties involved.