Fatorie: VAT Wrongly Charged Under the Reverse-Charge Regime
Under the reverse-charge regime, the recipient has no right to deduct VAT paid to the supplier without legal basis on an incorrectly issued invoice. Fiscal neutrality does not preclude this — tax that was not due creates no deduction, and its recovery is a matter between the parties, or a direct claim against the tax authority where the supplier is insolvent.
Facts
Romanian company Fatorie received construction works subject to the domestic reverse charge; supplier Megasal nevertheless issued an invoice with VAT, which Fatorie paid and then deducted. The supplier never remitted the tax and went insolvent. The tax authority refused the deduction, as under the reverse charge Fatorie itself should have accounted for the tax.
Legal assessment
The Court stressed that under the reverse charge no tax is paid between the parties — the recipient declares it and, as a rule, simultaneously deducts it in its own return. VAT paid to the supplier on an erroneous invoice was not tax due under the Directive, so no deduction arises from it; formal possession of an invoice changes nothing. Neutrality is preserved through restitution of the unduly paid amount between the parties under national law; where recovery from the supplier is impossible or excessively difficult (typically insolvency), the recipient must be able to claim directly from the tax authority. The loss of the deduction thus falls on the party that misapplied the regime.
Practical impact
Practically: if an invoice with VAT arrives for a supply falling under the reverse charge (construction and assembly works per Sec. 92e, selected metals and waste per Sec. 92c of the Czech VAT Act…), do not book it and do not pay the tax portion — return the document for correction. Tax paid to the supplier in error cannot be deducted and must be recovered privately. The correct route: self-account for the tax in your return and, conditions met, deduct it simultaneously (zero cash-flow). If the supplier is insolvent and recovery practically unattainable, claim the refund directly from the tax authority, citing CJEU case law (Farkas, C-564/15). Verify the regime and the supplier's status before the first invoice.