C-387/16 Nidera

JUDGMENT OF THE COURT (Fourth Chamber)

28 February 2018 ( *1 )

(Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Deduction of input tax — Article 183 — Refund of overpaid VAT — Late refund — Amount of default interest due under national law — Reduction of that amount for reasons not attributable to the taxable person — Whether permissible — Fiscal neutrality — Legal certainty)

In Case C‑387/16,

REQUEST for a preliminary ruling under Article 267 TFEU from the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania), made by decision of 5 July 2016, received at the Court on 12 July 2016, in the proceedings

Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos

v

Nidera BV,

intervening party:

Vilniaus apskrities valstybinė mokesčių inspekcija,

THE COURT (Fourth Chamber),

composed of T. von Danwitz, President of the Chamber, C. Vajda (Rapporteur), E. Juhász, K. Jürimäe and C. Lycourgos, Judges,

Advocate General: M. Szpunar,

Registrar: R. Schiano, Administrator,

having regard to the written procedure and further to the hearing on 8 June 2017,

after considering the observations submitted on behalf of:

Nidera BV, by I. Misiūnas, V. Vičius and I. Pašvenskaitė, acting as Agents,

the Lithuanian Government, by D. Kriaučiūnas, R. Butvydytė and R. Krasuckaitė, acting as Agents,

the Czech Government, by M. Smolek and J. Vláčil, acting as Agents,

the European Commission, by L. Lozano Palacios and J. Jokubauskaitė, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 5 October 2017,

gives the following

Judgment

Legal context and the dispute

1The present request for a preliminary ruling concerns the interpretation of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1) (‘the VAT Directive’).

2The request has been made in proceedings between the Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (State Tax Inspectorate attached to the Ministry of Finance of the Republic of Lithuania; ‘the State Tax Inspectorate’) and Nidera BV concerning the amount of default interest due in virtue of a late refund to Nidera BV of overpaid value added tax (VAT).

Legal context

European Union law

3The first paragraph of Article 183 of the VAT Directive provides:

‘Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.’

Lithuanian law

4Article 91(10) of the Lietuvos Respublikos pridėtinės vertės mokesčio įstatymas (Law of the Republic of Lithuania on value added tax), as amended by Law No IX‑751 of 5 March 2002, provided that overpaid VAT was to be refunded in accordance with the procedure and within the time limits laid down in the Lietuvos Respublikos mokesčių administravimo įstatymas (Law of the Republic of Lithuania on tax administration).

5Article 8(3) of the Law of the Republic of Lithuania on tax administration, as amended by Law No X‑1249 of 3 July 2007, (‘the Law on Tax Administration’) provides:

‘For the purpose of the administration of taxes, the tax authority shall respect the criteria of reasonableness and fairness.’

6According to Article 87(5) to (7) and (9) of the Law on Tax Administration:

‘5. Tax amounts overpaid by the taxpayer that remain after setting off such amounts against arrears in payments shall be refunded at the request of the taxpayer. …

6. The tax authority shall have the right to verify, in accordance with the procedure and within the time limits laid down in this law, whether or not the taxpayer’s request for a refund of the tax overpayment is substantiated.

7. ... The tax authority shall refund the tax overpayment to the taxpayer as follows:

the tax overpayment shall be refunded within 30 days from the date of receipt of a written request to refund the tax overpayment. If the tax authority requests further documents from the taxpayer, the time limit of 30 days shall be calculated from the date of receipt of those documents. … The time limits referred to in this paragraph shall not apply in the cases referred to in subparagraph 2 of this paragraph;

in cases where a tax investigation is conducted with respect to refunding a tax overpayment or where issues related to the refunding of a tax overpayment constitute an integral part of the investigation carried out by the tax authority in respect of the taxpayer, the tax overpayment shall be refunded not later than within 20 days after the tax authority’s decision, wherein the tax and (or) related amounts are calculated anew and the taxpayer is instructed to pay them, (or a certificate where no violations have been established) is communicated to the taxpayer.

…

9. If the tax authority fails to refund the tax overpayment within the time limit laid down in paragraph 7 of this article, it shall calculate interest thereon for the benefit of the taxpayer until the tax overpayment is refunded. The amount of such interest shall be equal to the amount of default interest for late payment of tax.’

7Article 99 of the Law on Tax Administration provides:

‘The Minister for Finance shall set the rate of default interest and its method of calculation, having regard to the weighted average annual interest rate for government bonds issued by auction in the previous calendar quarter by the Lithuanian State. The rate of default interest shall be calculated by increasing the abovementioned average rate by 10 percentage points.’

The dispute in the main proceedings and the question referred for a preliminary ruling

8Between February and May 2008, Nidera, a company established in the Netherlands, purchased wheat in Lithuania from suppliers of agricultural produce. The total amount of VAT paid, in accordance with the invoices of those suppliers, amounted to 11743259 Lithuanian litai (LTL) (approximately EUR 3400000). During the same period, Nidera exported that grain to third countries, applying the 0% VAT rate provided for under Lithuanian law.

9On 12 August 2008, Nidera was registered as a taxable person for the purposes of VAT in Lithuania. In its VAT declaration for the period from 12 to 31 August 2008, it declared that the above amount of VAT had been paid and requested a refund.

10By decision of 19 March 2009 approving the inspection report, the Vilniaus apskrities valstybinė mokesčių inspekcija (Vilnius District State Tax Inspectorate, Lithuania) refused that refund on the ground that, at the time when the wheat in question was delivered, Nidera was not registered as a taxable person for the purposes of VAT, with the result that, under Lithuanian law, it was not entitled to deduct the VAT paid.

11However, following the judgment of 21 October 2010, Nidera Handelscompagnie (C‑385/09, EU:C:2010:627), the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Tax Disputes Commission attached to the Government of the Republic of Lithuania) held, by decision of 24 November 2010, that Nidera was entitled to deduct the input VAT paid and ordered the tax authority to refund the amount in question. On 22 December 2010, the State Tax Inspectorate refunded Nidera overpaid VAT in the amount of LTL 11743259 (approximately EUR 3400000).

12Nidera subsequently requested payment of interest due by reason of the initial refusal to refund it the overpaid VAT. On 11 August 2011, the Vilnius District State Tax Inspectorate paid to it LTL 214 902.27 (approximately EUR 60000) by way of interest on the overpaid VAT relating to the period between the delivery of that judgment and the date on which the overpaid VAT was refunded. By contrast, the Inspectorate refused to pay default interest for the period prior to the delivery of that judgment. By decision of 2 October 2013, the State Tax Inspectorate rejected the complaint lodged by Nidera against that decision.

13Nidera brought an action before the Vilniaus apygardos administracinis teismas (Regional Administrative Court, Vilnius, Lithuania) seeking annulment of the decision of the State Tax Inspectorate and an amendment to the decision of the Vilnius District State Tax Inspectorate, ordering the Inspectorate to refund to it the amount of LTL 3 864 706.66 (approximately EUR 1100000) in interest. It claimed that interest had to be calculated from the date of commencement of the tax inspection, that is to say, 21 November 2008, until the date on which the overpaid VAT was refunded. That court upheld Nidera’s action in part and ordered the Vilnius District State Tax Inspectorate to pay to Nidera interest in respect of the period from 17 February 2009 to the date of the refund. The State Tax Inspectorate appealed against that decision before the referring court.

14That court states that it follows, in particular, from the judgment of 12 May 2011, Enel Maritsa Iztok 3 (C‑107/10, EU:C:2011:298), that Article 183 of the VAT Directive, read in the light of the principle of fiscal neutrality, precludes national legislation under which the normal period for refunding overpaid VAT, at the expiry of which default interest is payable on the sum to be refunded, is extended in the case where a tax investigation is instigated. The referring court considers that this therefore suggests that the interest due to Nidera should be calculated from the expiry of the period referred to in Article 87(7)(1) of that law, namely within 30 days from the date of receipt of the request for a refund, rather than from the expiry of the period referred to in Article 87(7)(2) of the Law on Tax Administration.

15However, the referring court harbours doubts as to the competence of the national authorities, including the courts, to reduce the interest due on the ground of the particular circumstances of the case in the main proceedings. In particular, the referring court is uncertain whether it has any discretion regarding the substantiation and correctness of the interest due, taking into account, inter alia, the relationship between that amount and that of the non-refunded overpayment, the period during which the overpayment was not refunded and the underlying reasons — in this case the national-law prohibition on persons not registered as taxable persons for the purposes of VAT from deducting input VAT —, as well as the loss actually incurred by the taxable person.

16According to the referring court, the judgment of 24 October 2013, Rafinăria Steaua Română (C‑431/12, EU:C:2013:686, paragraph 25) may indicate that the amount of interest due cannot be reduced in the light of circumstances unrelated to the actions of the taxable person himself. However, in so far as the purpose of such interest is to compensate the taxable person for the loss that he incurred owing to the unavailability of the corresponding funds, the referring court considers that a long period of unavailability of funds may give rise to a disproportionate amount of interest when compared with the loss actually incurred and that the criteria of reasonableness and fairness, which guide both the tax administration, in accordance with Article 8(3) of the Law on Tax Administration, and the national court, may lead to a reduction in that amount.

17Nevertheless, given the purposes of the VAT refund, inter alia that of not exposing the taxable person to any financial risk, the referring court observes that the adverse financial consequences resulting from the unavailability of funds may occur after their refund. Consequently, the fact of linking the amount of interest due to the loss actually incurred by the taxable person, so as to reduce the amount of that interest, does not eliminate all financial risk and places the taxable person at a disadvantage, since the onus of proving the loss incurred would lie with him.

18In those circumstances, the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Should Article 183 of [the VAT Directive], read in conjunction with the principle of fiscal neutrality, be interpreted as precluding a reduction in the interest that is normally payable under national law on overpaid (excess) VAT which was not refunded (offset) in due time, which takes into account circumstances other than those resulting from the actions of the taxable person himself, such as the relationship between the interest and the overpaid amount not refunded in due time, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person?’

Consideration of the question referred

19As a preliminary point, it should be noted that it is clear from the grounds of the request for a preliminary ruling that, following the delivery of the judgment of 12 May 2011, Enel Maritsa Iztok 3 (C‑107/10, EU:C:2011:298), the referring court decided that it is necessary, for the purposes of the dispute before it, to calculate the default interest due to Nidera on the amount of overpaid VAT refunded from the expiry of the period referred to in Article 87(7)(1) of the Law on Tax Administration, which Nidera and the Lithuanian Government confirmed at the hearing. The referring court therefore asks the Court for a ruling, not on the date from which default interest is payable, but solely on the possibility of reducing the amount of such interest.

20By its question, the referring court asks, in essence, whether Article 183 of the VAT Directive, read in the light of the principle of fiscal neutrality, must be interpreted as precluding a reduction in the amount of interest normally payable under national law on overpaid VAT which was not refunded in due time due to circumstances not attributable to the taxable person, such as the high amount of interest when compared with the amount of the overpaid VAT, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the loss actually incurred by the taxable person.

21It should be noted that, although Article 183 of the VAT Directive does not lay down any obligation to pay interest on a refund of overpaid VAT or the date from which such interest is payable, it cannot be concluded from that fact alone that that article must be interpreted as meaning that no control may be exercised under EU law over the procedures established by Member States for the refund of overpaid VAT (judgments of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraphs 27 and 28, and of 6 July 2017, Glencore Agriculture Hungary, C‑254/16, EU:C:2017:522, paragraph 18).

22First, while the implementation of the right to a refund of overpaid VAT provided for in Article 183 of the VAT Directive falls, as a general rule, under the procedural autonomy of the Member States, the fact remains that that autonomy is circumscribed by the principles of equivalence and effectiveness (see, to that effect, judgments of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraph 29; of 19 July 2012, Littlewoods Retail and Others, C‑591/10, EU:C:2012:478, paragraph 27; and of 24 October 2013, Rafinăria Steaua Română, C‑431/12, EU:C:2013:686, paragraph 20).

23Second, it follows from the Court’s case-law that certain specific rules must be complied with by the Member States in implementing the right to a refund of overpaid VAT arising from Article 183 of the VAT Directive, interpreted in the light of the general context and principles governing VAT (judgments of 24 October 2013, Rafinăria Steaua Română, C‑431/12, EU:C:2013:686, paragraph 21, and of 6 July 2017, Glencore Agriculture Hungary, C‑254/16, EU:C:2017:522, paragraph 19).

24Thus, while the Member States have a certain freedom in determining the conditions for the refund of overpaid VAT, those conditions cannot undermine the principle of fiscal neutrality by making the taxable person bear the burden of the VAT in whole or in part. In particular, such conditions must enable the taxable person, in appropriate circumstances, to recover the entirety of the credit arising from that overpaid VAT. This implies that the refund is made within a reasonable period of time and that, in any event, the method of refund adopted does not entail any financial risk for the taxable person (judgments of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraph 33, and of 6 July 2017, Glencore Agriculture Hungary, C‑254/16, EU:C:2017:522, paragraph 20).

25In that regard, when the refund to the taxable person of the overpaid VAT is not made within a reasonable period, the principle of fiscal neutrality of the VAT system requires that the financial loss incurred by the taxable person on account of the unavailability of the sums of money at issue be compensated through the payment of default interest. In the absence of EU legislation on VAT, it is for the internal legal order of each Member State to lay down the conditions under which default interest must be paid, particularly the rate of that interest and its method of calculation, whilst nevertheless observing the principle of fiscal neutrality (see, to that effect, judgments of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraphs 33, 53 and 54; of 19 July 2012, Littlewoods Retail and Others, C‑591/10, EU:C:2012:478, paragraph 27; and of 24 October 2013, Rafinăria Steaua Română, C‑431/12, EU:C:2013:686, paragraphs 22 and 23).

26With regard to the dispute in the main proceedings, the referring court states that, in accordance with Article 87(9) of the Law on Tax Administration, the rate of interest due in the event of late payment of overpaid VAT to the taxable person is the same as that of interest applicable to taxable persons in the event of late payment of the tax. In accordance with Article 99 of that law, that rate of interest is calculated by increasing the weighted average annual interest rate for government bonds issued in the previous calendar quarter by the Republic of Lithuania by ten percentage points.

27The referring court takes the view that, where a particularly late refund of overpaid VAT results in a long period of unavailability of funds, such a calculation could lead to an amount of compensatory interest that is disproportionate to the loss actually incurred by the taxable person. It states that, in those circumstances, the criteria of reasonableness and fairness entitle both the tax authorities, pursuant to Article 8(3) of the Law on Tax Administration, and the national courts to fix a reduction in that amount for the reasons mentioned in the question referred for a preliminary ruling, which are not related to the conduct of the taxable person. However, according to the reply of the Lithuanian Government to a question put by the Court at the hearing, up to the present, such a reduction has never been applied by the national courts.

28As regards, in the first place, a reduction on account of the amount of interest normally due, under the rules of national law, having regard to the amount of the overpaid VAT, as the Advocate General observed in point 35 of his Opinion, that interest is only compensation for the loss of income resulting from the duration of the non-payment of the principal. It follows that a reduction in that amount which is motivated solely by its significance in comparison with the principal amount to be refunded would imply for the taxable person the risk that the payment of default interest does not cover the entire period during which the principle of fiscal neutrality requires, according to the case-law cited in paragraphs 24 and 25 above, that the unavailability of the sums in question be compensated by the payment of default interest.

29In the second place, as regards the duration of the period of non-payment, it follows from the previous paragraph that that duration cannot in itself justify a reduction in the default interest, since the amount of that interest is specifically intended to compensate the financial losses incurred by the taxable person during that period. In addition, the possibility of reducing the amount of the interest due on account of the period of non-payment could mean that the tax authorities would not be encouraged to refund the overpaid VAT as soon as possible, which is also capable of giving rise to a financial risk for the taxable person contrary to the principle of fiscal neutrality.

30Furthermore, it must be made clear that the refusal of the tax authorities to refund the overpaid VAT claimed by Nidera before delivery of the judgment of 21 October 2010, Nidera Handelscompagnie (C‑385/09, EU:C:2010:627), also cannot justify a reduction in the amount of default interest. It must be borne in mind that the interpretation which the Court, in the exercise of the jurisdiction conferred upon it by Article 267 TFEU, gives to a rule of EU law clarifies and, where necessary, defines the meaning and scope of that rule as it must be, or ought to have been, understood and applied from the time at which it entered into force (judgments of 27 March 1980, Denkavit italiana, 61/79, EU:C:1980:100, paragraph 16, and of 14 April 2015, Manea, C‑76/14, EU:C:2015:216, paragraph 53 and the case-law cited).

31Moreover, from the perspective of the taxpayer, there is no material difference between a refund delayed because a claim was dealt with administratively after the expiry of the periods and one delayed by administrative measures which unlawfully preclude the refund and are subsequently annulled by a ruling of the Court of Justice (see, by analogy, judgment of 24 October 2013, Rafinăria Steaua Română, C‑431/12, EU:C:2013:686, paragraph 25).

32As regards, in the third place, the possibility for a national court to reduce the amount of interest normally due under national rules in order to take account of the losses actually incurred by a specific taxable person by reason of having been deprived, during the period of non-payment, of the amount of overpaid VAT to be refunded, such a possibility implies that it is for the taxable person to demonstrate the real financial losses which he has incurred by reason of being deprived of those funds.

33Nevertheless, the Lithuanian Government maintains, first, that the rate of interest provided for in Article 99 of the Law on Tax Administration not only aims to offset the loss incurred by the taxable person but entails, by virtue of the increase by ten percentage points of the annual interest rate for government bonds, a punitive element equivalent to a penalty. It submits that, in accordance with Article 87(9) of that law, the rate of interest due to the taxable person in the event of non-payment of overpaid VAT within the stipulated period is the same as the rate of interest applicable to taxable persons in the event of late payment of the tax.

34Second, it submits, the rate set in Article 99 of the Law on Tax Administration applies only to the period from the date of the decision of the tax authority or, where appropriate, of the courts upholding the request for a refund to the date at which the overpaid VAT was refunded to the taxable person in full. The Lithuanian Government infers from this that the application of that rate to the period preceding that decision would result in overcompensation for the loss incurred by the taxable person due to the unavailability of the funds to be refunded, which would enrich the taxable person unjustifiably.

35In that regard, it should be noted that the Lithuanian Government’s arguments are based on an interpretation of the Lithuanian legislation which differs from that set out by the referring court. The order for reference does not state that the default interest at issue in the main proceedings is punitive in nature. Furthermore, as has been noted in paragraph 19 above, the referring court decided that the date from which interest is payable must be determined in accordance with Article 87(7)(1) of the Law on Tax Administration, which sets a period of 30 days from the date of receipt of the request for a refund, not from the date of the decision ruling on that request. It is for the referring court alone to interpret national legislation and it is for the Court to answer the question referred on the basis of the referring court’s interpretation of that legislation (see, to that effect, judgment of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraph 38).

36In any event, in the context of the freedom to establish the conditions for a refund of overpaid VAT set out in paragraph 23 above, the Member States are entitled to lay down default interest at a flat rate in order to ensure compensation according to rules which are easily managed and supervised by the tax authorities. As the Advocate General noted in point 33 of his Opinion, although in some special cases the amount of compensatory interest may exceed the actual loss incurred by the taxable person, this is merely a result of applying compensation at a flat rate, which by its very nature reflects the loss which the taxable person might, in the view of the national legislature, incur and not the loss actually incurred. In specific cases, compensation in the form of interest may be greater or less than the actual loss.

37However, if national legislation, such as that at issue in the main proceedings, provides for the payment of such default interest at a flat rate, it cannot, at the same time, provide for the possibility of excluding the payment of such default interest and merely compensating actual loss on the basis of the criteria of reasonableness and fairness, as the Lithuanian Government maintains. Such national legislation would mean that the taxable person is unable to foresee the circumstances in which it can expect to receive the payment of default interest at a flat rate and thus to adjust its activity accordingly. It is thus apparent that such legislation does not enable the taxable person, in appropriate circumstances, to recover the entirety of the credit arising from the overpaid VAT without being exposed to any financial risk, which is contrary to the principle of fiscal neutrality (see, by analogy, judgment of 12 May 2011, Enel Maritsa Iztok 3, C‑107/10, EU:C:2011:298, paragraphs 57 and 58).

38In the light of all the foregoing considerations, the answer to the question referred is that Article 183 of the VAT Directive, read in the light of the principle of fiscal neutrality, must be interpreted as precluding a reduction in the amount of interest normally payable under national law on overpaid VAT which was not refunded in due time for reasons connected to circumstances not attributable to the taxable person, such as the high amount of that interest when compared with the amount of the overpaid VAT, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person.

Costs

39Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fourth Chamber) hereby rules:

Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principle of fiscal neutrality, must be interpreted as precluding a reduction in the amount of interest normally payable under national law on overpaid value added tax which was not refunded in due time for reasons connected to circumstances not attributable to the taxable person, such as the high amount of that interest when compared with the amount of the overpaid value added tax, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person.

Signatures

[Signatures]

( *1 ) Language of the case: Lithuanian.

OPINION OF ADVOCATE GENERAL

SZPUNAR

delivered on 5 October 2017 ¹

(Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Article 183 — Deduction of input tax — Refund of overpaid tax — Payment of interest on a refund of overpaid tax made after the time limit had passed — Possibility of reducing interest due for reasons beyond the taxable person’s control — Fiscal neutrality — Principles of equivalence and effectiveness — Legal certainty and protection of legitimate interests)

Introduction

1Overpaid tax must be refunded to the taxable person concerned within a reasonable period. If it is not refunded within a reasonable period, the taxable person must be compensated in the form of default interest. Those rules arise from the provisions of EU law and the case-law of the Court. However, in extreme cases the application of those rules may lead to a taxable person receiving, by way of interest, amounts which are substantial in relation to the amount of tax to be refunded. Therefore, the referring court in the present case asks whether, in those particular circumstances, those rules are subject to restrictions. In my view, they are not, for the reasons which I will set out in this Opinion.

Legal framework

EU law

2In accordance with the first paragraph of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax: ²

‘Where, for a given tax period, the amount of deductions exceeds the amount of VAT due, the Member States may, in accordance with conditions which they shall determine, either make a refund or carry the excess forward to the following period.’

Lithuanian law

3In Lithuanian law the rule on refunding overpaid value added tax (‘VAT’) was laid down in Article 91(10) of the Lietuvos Respublikos pridėtinės vertės mokesčio įstatymas (Law on VAT). That refund is to be made pursuant to the Lietuvos Respublikos mokesčių administravimo įstatymas (Law on tax administration).

4Under Article 87(6), (7) and (9) of that law, improperly levied taxes are to be refunded at the request of the taxable person, as a rule within 30 days. In situations requiring tax investigations, the refund is to be made within 20 days of the decision finding that, as a result of the investigation, the refund should be granted. Where the above time limits for refunding overpaid tax are not observed, interest in an amount equal to the default interest charged for the late payment of tax by a taxable person is to be added to the amount of the refund.

5Under Article 99 of that law, the Minister for Finance is to set the amount of interest, having regard to the average annual interest rate for government bonds issued in the previous three months. The amount of interest is to be calculated by increasing that average interest rate by ten percentage points.

Facts, procedure and the question referred

6In February and May 2008 Nidera B.V., a company incorporated under Netherlands law (‘Nidera’), acquired a consignment of grain from Lithuanian producers and paid VAT on those supplies in the amount of LTL 11743259 (approximately EUR 3400000). Nidera then exported that grain to third countries, applying a 0% VAT rate.

7On 12 August 2008 Nidera was registered as a taxable person for the purposes of VAT in Lithuania and requested, in a VAT declaration for the period from 12 to 31 August 2008, a refund of the VAT paid on the transactions concluded in February and May 2008. However, by decision of 19 March 2009 the Lithuanian tax authorities refused to grant Nidera a refund, stating that, since that company was not registered as a taxable person for the purposes of VAT on the day on which the transactions were effected, it was not entitled to deduct the input tax.

8Nidera instituted proceedings in that case which led to a ruling by the Court on a preliminary reference. ³ As a result of that ruling Nidera received, on 22 December 2010, a VAT refund in the amount of LTL 11743259, that is to say, an amount corresponding to the amount of tax paid. Nidera then requested payment of default interest on the VAT refund. The tax authorities paid it an amount of LTL 214 902.27 (approximately EUR 60000) by way of interest for the period from the date of the ruling by the Court to the date on which the tax was refunded. The appeal against that decision which Nidera lodged with the immediately superior tax authority was dismissed.

9Nidera then brought an action before the Vilniaus apygardos administracinis teismas (Regional Administrative Court, Vilnius, Lithuania), claiming that the abovementioned decision should be annulled and that the administrative authorities should be ordered to pay LTL 3 864 706.66 (approximately EUR 1100000) by way of interest for the period from 21 November 2008, that is to say, the date on which the tax inspection was initiated, to the date on which the VAT was refunded. That court upheld the action brought by Nidera in part, ordering that interest be paid for the period from 17 February 2009. The tax authority lodged an appeal against that judgment with the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania), which is the referring court in the present case.

10The referring court has doubts as to whether it has the power to limit the amount of default interest for the late refunding of unduly paid VAT on account of the substantial amount of interest in relation to the principal sum and the loss actually incurred by the taxable person. In those circumstances, the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court) has decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:

‘Should Article 183 of [Directive 2006/112], read in conjunction with the principle of fiscal neutrality, be interpreted as precluding a reduction in the interest that is normally payable under national law on overpaid (excess) VAT which was not refunded (offset) in due time, which takes into account circumstances other than those resulting from the actions of the taxable person himself, such as the relationship between the interest and the overpaid amount not refunded in due time, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person?’

11The request for a preliminary ruling was received at the Court on 12 July 2016. Written observations were submitted by Nidera, the Lithuanian and Czech Governments, and the European Commission. Nidera, the Lithuanian Government and the Commission were represented at the hearing on 8 June 2017.

Analysis

12By the question referred in the present case the national court asks, in essence, whether Article 183 of Directive 2006/112, read in conjunction with the principle of fiscal neutrality, should be interpreted as permitting a reduction in the amount of interest due to a taxable person by way of default interest for the late refunding of overpaid VAT in relation to the amount of interest to which he would have been entitled under the normal rules, for reasons unconnected with the actions of that taxable person, but arising from the substantial amount of that interest in relation to the principal sum and the losses actually incurred by the taxable person.

Obligation to refund overpaid tax

13At the outset, it should be recalled that the obligation under Article 183 of Directive 2006/112, read in conjunction with the principle of fiscal neutrality, to refund overpaid VAT — together with interest where that refund has not been made within a reasonable period — arises from settled case-law. ⁴ As a rule, the date on which the refund should have been made should be taken as the starting point for calculating the amount of interest in this respect. ⁵ The period for the refund may be postponed owing to the need to conduct an investigation to establish the right to a refund of tax, but where the length of that investigation exceeds the time necessary to carry it out the taxable person is also entitled to interest. ⁶

14Similar rules, that is to say, an obligation to refund with interest, apply in relation to tax levied in breach of EU law. ⁷ It must be held that that is also true of tax which, as in the present case, was indeed levied in accordance with EU law, but the refund of which was refused, in breach of that law.

15I therefore consider it beyond dispute that, under Article 183 of Directive 2006/112, read in conjunction with the principle of fiscal neutrality, Nidera was entitled to a refund of the VAT at issue in the main proceedings, together with interest calculated from the time limit for refunding that tax, fixed pursuant to Lithuanian law, once the tax inspection was completed. ⁸ However, on 19 March 2009 the Lithuanian tax authorities, incorrectly and in breach of EU law, issued a decision refusing to refund the tax.

16Although it does not challenge that right in principle, the referring court does ask whether, in the particular circumstances of the main proceedings, in which the long period of delay in refunding the tax has given rise to a right on the part of the taxable person to a very large amount of interest in relation to the principal sum, which potentially exceeds the amount of the losses actually incurred by that taxable person as a result of the failure to refund the tax, it is possible to restrict the amount of that interest by means of a judicial decision.

Principles of equivalence and effectiveness

17It is the legislation of the Member States which, in accordance with the principle of procedural autonomy, lays down the rules on the refunding of overpaid or improperly levied taxes, including the amount of any interest. However, those rules must be reconciled with the principles of equivalence and effectiveness. ⁹

Principle of equivalence

18The principle of equivalence requires that the rules concerning the refunds to which a taxable person acquires the right under EU law be no less favourable than the rules relating to similar rights arising under national law.

19In my view, the provisions of Lithuanian law cited in the request for a preliminary ruling do not give courts an unequivocal power to reduce the amount of interest paid to taxable persons on account of the late refunding of tax in relation to the amount of that interest arising under law. In addition, the decision of the referring court contains no information on the practice of the Lithuanian courts in this regard. Therefore, it is difficult to assess whether a reduction in interest in the event of a refund of tax under EU law would constitute less favourable treatment than the refunding of taxes carried out on the basis of national law.

20Therefore, it will ultimately be for the referring court to assess whether the principle of equivalence has been observed. However, I consider that, if Lithuanian law does not contain unequivocal rules empowering the courts to reduce interest and if there is no established judicial practice which permits such action by the courts in relation to the refunding of taxes carried out on the basis of national law, a reduction in the interest due by way of a refund of tax under EU law, in particular were it to set a precedent, would be contrary to the principle of equivalence. If the referring court were to find that that is essentially the case, that alone would, in my view, be sufficient for the question referred to be answered in the affirmative.

Principle of effectiveness

21The principle of effectiveness requires that the rules on redress laid down in national law not render impossible in practice or excessively difficult the exercise of rights arising under EU law. The answer to the question as to whether it is possible to reduce the interest due to a taxable person for the late refunding of overpaid tax in the light of the principle of effectiveness requires a more extensive analysis.

22As is apparent from the case-law cited above, a taxable person for the purposes of VAT has the right, under Article 183 of Directive 2006/112, to a refund of tax paid where the amount of that tax exceeds the amount which he is entitled to deduct. This follows from the general scheme of VAT, the burden of which is to be borne by the consumption of goods or services and which must be imperceptible for economic operators. The principle of VAT neutrality for taxable persons derives from that scheme.

23The refund of tax must be made within a reasonable period as laid down in the internal rules of the Member States. Failure to do so within a reasonable period should entail compensation for the consequent harm suffered by the taxable person, so that he does not bear any associated financial risk. ¹⁰

24The losses which a taxable person may incur as a result of the late refunding of tax can vary. They arise primarily from the unavailability of the sums of money which, in normal circumstances, that is to say, if the refund had been received on time, would have been available to him but which remain ‘frozen’ in the tax authority’s account.

25Losses of this kind are not easy to calculate precisely because they consist mainly of the loss of the profit (lucrum cessans) which the taxable person could have made by investing sums of money either in his own business or in financial instruments. Thus, the typical difficulties in calculating future income, which is by nature uncertain and not unconditional, arise in this case.

26Consequently, the generally recognised form of compensation for losses of this kind is the payment of interest, which is a form of flat-rate compensation. Such a form of compensation allows the creditor (in this case the taxable person) to obtain equitable compensation without having to produce very difficult-to-furnish evidence of the actual loss and, on the other hand, does not expose the debtor to having to pay unpredictable and potentially significant amounts.

27Default interest also plays an additional role in that it constitutes a penalty which is intended to induce the debtor to pay the amount due to the creditor on time, as otherwise that amount will be increased by interest. However, I consider that, where the debtor is the State and the creditor is a taxable person, the disproportionate nature of the financial potential of the two sides means that it is the compensatory function of the interest which plays the predominant role. Whereas for the State budget a single amount due from a specific taxable person is insignificant, in the taxable person’s budget it will normally constitute a substantial item and may even, on occasion, determine his liquidity.

28Default interest is normally determined on the basis of the average costs of obtaining the sums of money on the banking market. Therefore, compensation in the form of interest has the added advantage that it allows the creditor to obtain the sums of money he requires in the form of a bank loan, with the guarantee that he will recover, in the form of default interest, an amount corresponding roughly to the costs of obtaining that loan.

29The amount of default interest is normally laid down in the national legislation of the Member States. From the point of view of EU law, provided that that amount is not set at an abnormally low level, which would be contrary to the principle of effectiveness, the Member States are free, in the exercise of their procedural autonomy, to lay down in their national law the amount of interest in force. The amount of interest thus laid down allows creditors and debtors to predict precisely the extent of their future financial rights or, where appropriate, obligations, thereby constituting a guarantee of legal certainty.

30Thus, if, under Article 183 of Directive 2006/112, read in conjunction with the principle of fiscal neutrality, a taxable person has a right to receive a refund of overpaid tax within a reasonable period, and, where such tax is not refunded within that reasonable period, a right to compensation for losses incurred owing to the late refunding of tax, that means, in my view, that there is a right to receive interest for the late refunding of tax in the full amount laid down in the national law of the Member State concerned. Therefore, a restriction of the right to receive interest must be regarded as contrary to the principle of effectiveness since it means that the exercise of the right arising under EU law — and consisting of the right to compensation for a loss incurred as a result of the late refunding of tax — will become impossible or at least excessively difficult. In addition, such a restriction will also be contrary to the principle of legal certainty and the protection of legitimate expectations, as a taxable person who is in that position as a creditor of the tax authorities has the right to expect to receive interest in the full amount laid down by law. A restriction on the right to receive interest in the full amount would be possible only in particular situations where the delay in refunding the tax occurred for reasons attributable to the taxable person. However, that is not the position in the present case.

31The possibility of reduction, by a court or tribunal, of the amount of interest due to a taxable person where a significant delay, not attributable to that person, in the refunding of tax has given rise to a right on the part of that person to receive a particularly large amount of interest in relation to the principal sum, which potentially exceeds the amount of the losses actually incurred by that person owing to the delay in refunding that tax, must, in my view, be regarded as contrary to the principle of effectiveness.

32Such a reduction in the amount of interest due would inevitably involve the taxable person having to prove the amount of that actual loss. ¹¹ As I have stated above, such proof is particularly difficult to furnish, because the losses concerned are in the form of non-received income which is therefore by nature difficult to calculate and prove. The need to produce such proof would therefore render it excessively difficult, and in many cases probably even impossible, for taxable persons to exercise the right to receive a refund of tax together with compensation for any delay in making that refund. The difficulties involved in such a process for claiming compensation for that delay are particularly evident when compared with the very simple mechanism for the payment of default interest in a pre-determined amount.

33In actual fact, as the referring court observes, in some cases the amount of interest may exceed the actual loss incurred by the taxable person. However, this is a normal phenomenon associated with applying compensation at a flat rate, which by its very nature reflects the approximate and statistically probable loss which the taxable person might incur and not the loss actually incurred. In specific cases compensation in the form of interest may be greater or less than the actual loss, but in my view that does not justify not applying it at all.

34In particular cases, for example where a delay in paying a debt results in a creditor becoming bankrupt, it (or its successors in law) can claim compensation which is greater than the amount of default interest. This is also true of relations between the State and taxable persons. However, such a decision depends exclusively on the will of the creditor. Nonetheless, the possibility of claiming compensation exceeding the amount of interest does not deprive the creditor of the guarantee which interest provides.

35The position is similar as regards the relationship between the amount of interest and the principal sum. The amount of interest is determined by the amount of the principal sum and the length of the delay in refunding the tax. Where that delay has been particularly long, the amount of interest may be close to, or even exceed, the principal sum. However, this merely illustrates the length of the delay. Underlying the instrument of default interest is the assumption that if the creditor had at his disposal the sums of money due to him for the duration of the delay in payment he could have obtained income from them: the cumulative amount thereof would depend on the time elapsed, and could also equal or exceed the amount originally invested. Therefore, his obtaining a similar amount by way of interest does not constitute unjust enrichment, but is merely compensation for his inability to obtain income as a result of the delay in refunding the principal sum.

36Lastly, it should be borne in mind that it is the Member States which, in the exercise of their procedural autonomy, lay down the amount of default interest, including for a delay in refunding overpaid tax. Therefore, where a State recognises that the amount of interest laid down in national law exceeds equitable compensation for the harm caused by that delay, it has the possibility of reducing it by way of legislation. However, until such statutory reduction is effected, taxable persons deriving their right to a refund of tax from EU law have the right to receive interest in the full amount arising from the provisions in force.

Remarks on the arguments put forward by the Lithuanian Government

37In its observations in the present case the Lithuanian Government also relies on the argument that the default interest for the late refunding of overpaid tax provided for in Lithuanian law does not constitute compensation for the harm suffered by the taxable person as a result of the delay in refunding that tax, but is merely a penalty and serves to induce the tax authorities to fulfil their obligation to refund the tax as quickly as possible. The Lithuanian Government relies on the fact that that interest is set on the same basis as the penalty interest due from taxable persons for delays in paying tax, which is twice the rate of default interest in private-law relationships. Consequently, the Lithuanian Government considers that the rate of compensatory interest must only be set by the referring court in the main proceedings.

38I find that argument unconvincing for several reasons.

39First, none of the information contained in the request for a preliminary ruling or the parties’ observations indicates that there is any such judicial practice of setting a rate of compensatory interest in lieu of the rate of interest laid down in Lithuanian law in the event of a delay in the refunding of tax. Moreover, the agent for the Lithuanian Government stated at the hearing that, as far as he is aware, the present case is setting a precedent. This must be taken to mean that, in other cases, including where tax is refunded solely on the basis of national law, taxable persons receive interest in the amount laid down in law. Therefore, the application in the present case of the theory put forward by the Lithuanian Government would mean less favourable treatment of a claim based on EU law, which would be contrary to the principle of equivalence and should be ruled out on that ground alone. ¹²

40Second, as I have already mentioned, ¹³ although default interest normally has both a compensatory and a punitive function, the relevance of those two functions is different in the State’s relations with taxable persons. In actual fact, where the taxable person acts as the debtor, the punitive function of interest has more relevance, as the losses to the State budget as a result of an individual taxable person not paying tax are relatively minor. However, it is otherwise in the reverse situation where the State is the debtor vis-à-vis the taxable person by virtue of its obligation to refund tax. In that case, the effectiveness of the interest’s punitive function is generally rather limited, and its compensatory function is paramount, since the losses incurred by the taxable person as a result of the delay in refunding the tax may potentially be highly significant in relation to his overall funds. Therefore, I am unable to concur with the Lithuanian Government’s assertion that the default interest due from the State to a taxable person for a delay in refunding overpaid tax performs the same exclusively or mainly punitive function as the default interest for late payment by a taxable person. The fact that that interest has been set at the same level is a technical choice that has been made by the Lithuanian legislature.

41Third, the argument put forward by the Lithuanian Government would mean that Lithuanian law essentially does not generally set the rate of interest due to taxable persons for a delay in the refunding of tax. However, in situations where that refund has been made pursuant to EU law, this would be contrary to the case-law cited above ¹⁴ and the principle of effectiveness. The right to a refund of tax together with default interest does not mean merely the right to expect to receive interest in the amount which a court wishes to set in the course of proceedings, but the right to receive interest in an amount known in advance, laid down a priori in law. However, the Lithuanian Government appears to overestimate the scope of the freedom that the Member States enjoy when laying down the rules on refunding overpaid VAT. Whilst the first paragraph of Article 183 of Directive 2006/112 provides that the Member States are to determine the conditions under which they are to refund overpaid VAT, the manner in which those conditions are determined must satisfy the minimum criteria of predictability and legal certainty. The same is true as regards determining the amount of interest to which the taxable person is entitled in the event of a delay in the refunding of tax, since the right to receive interest in the event of delay is an element of the right to a refund of overpaid tax. Therefore, the refund conditions, including the amount of interest, cannot be laid down, as the Lithuanian Government would like, on an ad hoc basis by judicial decisions in individual cases concerning specific taxable persons. In my view, such a mechanism would be contrary to the principle of effectiveness, since an essential element of the effective assertion of the rights arising under EU law is certainty as to the scope of those rights and the protection of legitimate expectations in that regard.

42Lastly, the Lithuanian Government suggests that the default interest for the late refunding of tax provided for in Lithuanian law could be reduced by restricting it to one component of the rate of that interest, that is to say, the average interest rate for government bonds.

43However, leaving aside the problem of the likely incompatibility of that approach with the principle of equivalence, government bonds, as financial instruments regarded as particularly safe, normally have a very low rate of interest, significantly lower than the average loan interest rate on the banking market. Therefore, in my view, default interest for the late refunding of tax in an amount restricted to the level of interest for government bonds would not perform a compensatory function, since it would not even enable the cost of raising the missing funds on the banking market to be met. Thus, that interest would not perform the role of providing compensation for the harm suffered by the taxable person as a result of the delay in refunding the tax and would partially shift onto him the financial risk associated with that delay. The setting of interest at such a low rate would therefore be contrary to the principle of effectiveness.

Summary

44In short, my view is that Article 183 of Directive 2006/112, read in conjunction with the principle of fiscal neutrality and in the light of the principles of equivalence and effectiveness, requires that, where the tax authorities fail to refund overpaid VAT within a reasonable period as laid down in national law, the taxable person is to receive a refund of that tax together with interest in the full amount provided for in the national law in force, where the delay in refunding the tax was not caused by the taxable person’s actions.

Conclusion

45In the light of all of the foregoing, I propose that the Court answer the question referred by the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania) as follows:

Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with the principle of fiscal neutrality, must be interpreted as not permitting a reduction in the amount of interest due to a taxable person by way of default interest for the late refunding of overpaid VAT in relation to the amount of interest to which he would have been entitled under the normal rules, for reasons unconnected with the actions of that taxable person.

¹ Original language: Polish.

² OJ 2006 L 347, p. 1.

³ Judgment of 21 October 2010, Nidera Handelscompagnie (C‑385/09, EU:C:2010:627).

⁴ See, most recently, judgment of 6 July 2017, Glencore Agriculture Hungary (C‑254/16, EU:C:2017:522, paragraphs 18 to 22 and the case-law cited).

⁵ Ibid., paragraph 23.

⁶ Ibid., paragraph 24.

⁷ See, most recently, judgment of 30 June 2016, Toma and Biroul Executorului Judecătoresc Horațiu-Vasile Cruduleci (C‑205/15, EU:C:2016:499, paragraph 32 and the case-law cited).

⁸ The issue of the date from which the interest at issue in the main proceedings is to be calculated is not the subject matter of the question referred. I merely recall that the court of first instance in the main proceedings ruled that interest should be calculated from 17 February 2009. However, it should be noted that, contrary to the Lithuanian tax authorities’ assertions, the failure to refund the tax at issue was in breach of EU law from the outset and not just from the date (21 October 2010) on which the Court delivered its judgment in Nidera Handelscompagnie (C‑385/09, EU:C:2010:627). Preliminary rulings of the Court of Justice are declaratory in nature and determine the interpretation of EU law as it must be applied from the time of its coming into force (see, in particular, judgments of 27 March 1980, Denkavit italiana, 61/79, EU:C:1980:100, paragraph 16; of 19 October 1995, Richardson, C‑137/94, EU:C:1995:342, paragraph 33; and of 14 April 2015, Manea, C‑76/14, EU:C:2015:216, paragraph 53). In exceptional circumstances it is possible to limit the temporal effects of a judgment (see judgment of 14 April 2015, Manea, C‑76/14, EU:C:2015:216, paragraph 54); however the Court did not do so in relation to the judgment of 21 October 2010, Nidera Handelscompagnie (C‑385/09, EU:C:2010:627).

⁹ See, most recently, judgment of 30 June 2016, Toma and Biroul Executorului Judecătoresc Horațiu-Vasile Cruduleci (C‑205/15, EU:C:2016:499, paragraph 34 and the case-law cited).

¹⁰ See judgment of 6 July 2017, Glencore Agriculture Hungary (C‑254/16, EU:C:2017:522, paragraphs 20 and 22 and the case-law cited).

¹¹ I would point out that in Lithuanian law there are no specific provisions laying down the rules governing such reduction of interest by a court or tribunal and it is hard to imagine that either would reduce it in an entirely arbitrary manner, without taking account of the actual loss incurred by the taxable person.

¹² See point 20 above.

¹³ See point 27 above.

¹⁴ See points 13 and 14 above.