An entrepreneur who provides services exclusively to private individuals who are not entitled to deduct input tax does not owe the incorrectly reported VAT amount.

If an entrepreneur shows too high a sales tax amount in an invoice, he owes this by virtue of accounting and must pay it to the tax office. The European Court of Justice (ECJ) has now decided that this principle does not apply if the recipient of the service and invoice is a private individual.

The reason for the ECJ proceedings was an operator of an indoor playground, who always charged his customers (exclusively private end consumers and therefore non-entrepreneurs not entitled to input tax deduction) for his services at the normal tax rate of 20%. However, the entrepreneur later found out that the fees for entering the indoor playground are actually subject to the reduced sales tax (VAT) rate of 13%, which is why he corrected the relevant sales tax return and wanted to recover the resulting VAT credit from the tax office.

correction of the small-amount invoices was impossible due to a lack of knowledge of the individual invoice recipients (customers) and was therefore not carried out . However, the tax office refused both the changed (reduced) VAT assessment and the repayment of any credit on the grounds that the invoices to the customers were not corrected.

ECJ contradicts tax office

The ECJ contradicted the legal opinion of the tax office and stated that the EU legal basis for a VAT liability by virtue of accounting only applies if the incorrect VAT ID poses a threat to tax revenue because excessive input tax could be deducted. However, since in the present case the recipients of the service are exclusively end consumers without the right to deduct input tax, there is no risk to tax revenue with regard to the incorrect (too high) VAT ID, because no input tax deduction can be claimed at all. For this reason, the sales tax wrongly charged by the entrepreneur is not owed.

However, these statements only apply to incorrect invoices issued to private individuals and not to cases of incorrect VAT identification for services rendered to entrepreneurs. If the entrepreneur receiving the service has the right to deduct input tax and can also claim this (incorrect) input tax deduction, there is a risk to tax revenue according to the ECJ.

A sales tax liability by virtue of accounting therefore depends on whether the recipient of the service is an entrepreneur or a non-entrepreneur and whether he is entitled to input tax deduction. The judgment refutes the view of the Austrian tax authorities, which would have led to a factually impossible correction of invoices for private individuals or the unjustified tax would have remained with the state.