European Court of Justice (ECJ) ruling reduces risk for invoicing

The recent decision of the ECJ provoked a positive reaction in general, especially in view of the numerous legal requirements for correct invoicing.

German VAT law differentiates between invoices issued with an incorrect tax rate and those where tax is not applicable.

However, EU law doesn’t make this difference and its focus is on the invoice issued, and whether the tax amount shown is incorrect.

This could be particularly helpful for online sellers that generate sales EU-wide, and that are obliged to prove that taxes have not been evaded. For B2C business, the VAT rates applicable are determined by the route and country the goods are delivered to. The correct VAT rate may well change depending on the level of total sales of the online seller. At the same time, for B2B sales within the EU, the topic of correct invoicing is a key issue to ensure VAT-free transactions. Here, there are multiple requirements which include having a valid VAT number for both parties, as well as proof that the goods arrived in the other EU member state.

So, although the risks for invoicing may have been reduced by the ECJ ruling, it remains to be seen if it is implemented by the local tax authorities, and therefore a clear focus should be maintained on invoicing according to the local requirements.