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Is it necessary to issue invoices in the era of digital invoicing?

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Fernando Matesanz of Spanish VAT Services provides an emphatic response to the question of whether invoices are still required and explains an interesting related case at the Court of Justice of the European Union.

The answer to the above question is a resounding ‘yes’. Invoices are necessary for many reasons. They are of particular relevance in the field of VAT since they are the means through which VAT is charged and they are also the formal documents that grant the right to deduct the VAT paid by the purchaser of the goods and services.

A salient case

The purpose of the question raised is to draw attention to the recent ruling by the Court of Justice of the European Union (CJEU) in case C-235/21 (Raiffeisen Leasing), which once again dealt with excessive formalism on the part of the tax authorities of an EU member state.

In this case, the discussion revolved around the need to issue an invoice with all the necessary requirements to serve as a document to justify, among other things, the VAT charged and who is liable to pay it to the tax authorities, and to allow the exercise of the right to deduct the input VAT.

The case concerned two Slovenian entities that agreed to enter into a sale and leaseback transaction. One of the entities was obliged to sell a property to the other. The latter then leased the property to the seller. The lessor did not issue an invoice as a result of the leasing and did not pay the corresponding VAT. The lessee, on the other hand, exercised its right to deduct as it considered that the contract concluded should be considered as an invoice in accordance with Article 203 of the VAT Directive.

The Slovenian authorities held the lessor liable for the payment of VAT plus interest for late payment, which had not been paid over a long period under the lease contract. The tax authorities took the view that since the lease contract contained an express reference to VAT, it should be treated as an invoice.

It was decided to refer a question to the CJEU on whether Article 203 of the VAT Directive should be interpreted as meaning that a contract can be considered as an invoice when the parties have not issued a standard invoice. The question also arises as to what, if this is the case, are the elements that such a contract must contain.

The VAT Directive

Article 203 of the VAT Directive states that "VAT shall be payable by any person who enters the VAT on an invoice".

The ultimate aim of Article 203 of the VAT Directive, by requiring the payment of VAT to the person mentioned on the invoice, is to eliminate the risk of loss of tax revenue for the tax administration, which could be caused by the deduction that the purchaser will exercise on the basis of the same invoice.

Article 226 of the VAT Directive sets out the requirements that an invoice must fulfil. These requirements are necessary for tax administrations to be able to verify the payment of VAT due and the existence of the right to deduct input VAT.

At the same time, however, there must always be proportionality in the requirement to comply with these formal conditions.

In this case, if the tax administration has the necessary information to carry out a check on the reality of the transaction – for example, because there is a document other than the invoice that provides such information (such as a contract) and it can be concluded from this that there is no risk of a loss of tax revenue – it should not impose additional formal requirements on taxable persons that excessively complicate the exercise of any of their rights.

This means that a document, even if it is not called an invoice by its issuer, could be considered as such as long as it mentions the amount of VAT charged on the transaction and contains the other information necessary for the tax administration to ensure that the material requirements for the right to deduct VAT are indeed met.

A difficult balance

Taking all the above into account, the answer to the question that gives the title to this article should always be yes, of course it is necessary to issue an invoice for the supply of goods and services.

However, the case before the CJEU showed us that when, due to the circumstances of the case, it has not been possible to issue an invoice and the reality of the transaction has been duly proved by some other document such as a contract, this document can have the same effects as an invoice. For example, the right to deduct input VAT paid by the taxable person should remain possible.

Once again, it is a question of finding the difficult balance between formal and material requirements.

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