On 15 November 2019, the French Supreme Administrative Court (“Conseil d’Etat”) released a decision about a case where a taxpayer unduly paid French VAT to its supplier while the reverse charge was applicable (Case No 420251, Eye Shelter).
The Luxembourg-based company Eye Shelter was involved in a complex supply chain of goods in France. The invoices that company received from its Swiss supplier included French VAT. Eye Shelter filed claims for the refund of the VAT charged by the Swiss company but the French VAT Authorities argued that the reverse charge was applicable and rejected these claims. The position of the Authorities was confirmed by the Administrative Court of Appel of Versailles.
One should assume from the assumption that the reverse charge was indeed applicable in the relationship between the Swiss Company and Eye Shelter. That point was actually not disputed in front of Conseil d’Etat.
With respect to the right to deduction, the European Court of Justice already stated that where a customer acquiring goods has paid VAT incorrectly mentioned on the supplier's invoices although the reverse charge was applicable, that customer cannot deduct the VAT wrongly paid. In principle, the customer should request for a reimbursement of the VAT unduly paid to his supplier. However, if that reimbursement of the VAT by the supplier becomes impossible or excessively difficult, in particular in the event of the supplier's insolvency, the principle of effectiveness may require that the customer can direct his refund claim directly against the tax authorities (EUCJ, C-564/15, Farkas, 26/04/2017 and C-691/17, PORR Epitesi Kft, 11/04/2019).
Based on these European principles, the Conseil d’Etat therefore ruled that it was necessary for the Administrative Court of Appeal to determine whether Eye Shelter had established that it was unable to obtain from its Swiss supplier a reimbursement of the VAT it had paid or that such a reimbursement was excessively difficult and, if so, to ensure that the risk of loss of tax revenue to the Treasury had been eliminated.