The CJEU rules that there is no obligation to pay compensatory interest if the taxable person made errors in the accounts

In this case, deductible VAT is calculated on the general expenses of the municipality, including acts it performs as a public authority and economic activities that may be exempt. A key established by the municipality through its accounting system is used to allocate these expenses to non-economic activities.

The same municipality obtained a refund of the VAT amount in question due to the retroactive application.

The allocation key initially used by the municipality was established under the sole responsibility of the municipality and the amount of deductible VAT calculated on the basis of this allocation key does not constitute an amount collected in breach of EU law. Consequently, an examination of its accounts revealed various errors in the classification of certain services provided by the municipality and in the accounting of certain debit or credit items, which led to a recalculation of the VAT:

• VAT due and
• of deductible input VAT, so that there is no obligation to pay compensatory interest calculated on the amount refunded and from the day of payment of the VAT.

The Court considers that the VAT Directive does not lay down an obligation to pay interest on surplus VAT to be refunded, nor does it specify the time from which such interest accrues, the principle of neutrality of the VAT tax system requires that economic losses incurred due to the refund of surplus VAT be compensated by the payment of interest for late payment.

However, the obligation to pay such interest will only exist where the refund of the surplus VAT is not made within a reasonable period of time.

Therefore, EU law must be interpreted as meaning that it does not require interest to be paid to a taxable person from the payment of an amount of VAT which is subsequently refunded by the tax authorities, where that refund is the result, in part, of a finding that the taxable person, because of errors made in his accounts, did not fully exercise his right of recovery, did not fully exercise its right to deduct input VAT paid in the tax periods in question and, in part, of a modification with retroactive effect of the rules for calculating deductible VAT corresponding to the taxable person’s overheads if those rules are established under the full responsibility of the taxable person.

If you have any doubts about this subject, please do not hesitate to contact us, by telephone to Carles Monfort Codina or by e-mail to cmc@btsasociados.com, we will be delighted to help you.