CJEU: the 20% VAT sanction is incompatible with EU law

30 April 2021

The CJEU issued on 15 April 2021 a judgment in C-935/19 on whether tax authorities may impose a 20% VAT sanction on taxpayers.
 

Matter in controversy 

The case concerned a company which classified incorrectly a real property purchase as a VAT taxable purchase. During a tax audit, tax authorities found that the transaction was fully exempt from VAT and the company was not entitled to deduct the VAT amount disclosed in the purchase invoice.
 
Although the company amended the relevant VAT return to rectify its error, tax authorities ruled that the company must pay a penalty of 20% of the amount by which the requested VAT refund was overstated. 

 
CJEU judgment

In its judgment, the CJEU has ruled that the EU laws preclude the Polish laws imposing a 20% VAT sanction on a taxpayer if there are no indications of fraud or loss of state revenue.
 

What does it mean for taxpayers

Taxpayers can reclaim the VAT sanction unduly levied by tax authorities.
 
Taxpayers on whom tax authorities have imposed a VAT sanction can invoke the CJEU's judgment also in other cases, namely, if the identified VAT accounting error results from the taxpayer's belief that a supply is a VATable supply and his actions do not suggest an attempt to evade taxation. The judgment can also be applied to the 15% VAT sanction.
 
We advise that you review the proceedings for VAT sanctions imposed on you and challenge the rulings of tax authorities if those amounts were not due.