C-532/16 SEB bankas

JUDGMENT OF THE COURT (First Chamber)

11 April 2018 ( *1 )

(Reference for a preliminary ruling — Common system of value added tax (VAT) — Limitation of the right to deduct input tax — Adjustment of the deduction of input tax paid — Supply of land — Mischaracterisation as ‘taxable activity’ — Indication of VAT on the initial invoice — Amendment of that indication by the supplier)

In Case C‑532/16,

REQUEST for a preliminary ruling under Article 267 TFEU from the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania), made by decision of 3 October 2016, received at the Court on 18 October 2016, in the proceedings

Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos

v

SEB bankas AB

THE COURT (First Chamber),

composed of R. Silva de Lapuerta, President of the Chamber, J.-C. Bonichot (Rapporteur), A. Arabadjiev, S. Rodin and E. Regan, Judges,

Advocate General: M. Bobek,

Registrar: M. Aleksejev, Administrator,

having regard to the written procedure and further to the hearing on 4 October 2017,

after considering the observations submitted on behalf of:

SEB bankas AB, by M. Bielskienė, acting as Adviser, and by A. Medelienė, advokatė,

the Lithuanian Government, by D. Kriaučiūnas, R. Krasuckaitė and J. Prasauskienė, 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 20 December 2017,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Articles 184 to 186 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 under the Ministry of Finance of the Republic of Lithuania; ‘the tax authority’) and SEB bankas AB concerning a revised assessment to tax to which the latter company was subject for the purpose of adjusting the deduction, made by that company, of value added tax (VAT) which it had paid upon a purchase of land.

Legal context

EU law

3Article 12(1)(b) of the VAT Directive provides as follows:

‘1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

…

the supply of building land.’

4Article 135(1)(k) of the VAT Directive is worded as follows:

‘1. Member States shall exempt the following transactions:

…

the supply of land which has not been built on other than the supply of building land as referred to in point (b) of Article 12(1).’

5Article 179 of the VAT Directive provides:

‘The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178.

However, Member States may require that taxable persons who carry out occasional transactions, as defined in Article 12, exercise their right of deduction only at the time of supply.’

6Chapter 5 of the VAT Directive, entitled ‘Adjustment of deductions’, contains, inter alia, Articles 184 to 189.

7Article 184 of the VAT Directive provides:

‘The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.’

8Article 185 of the VAT Directive provides:

‘1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.

2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.

However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.’

9Article 186 of the VAT Directive states as follows:

‘Member States shall lay down the detailed rules for applying Articles 184 and 185.’

10Article 187 of the VAT directive is worded as follows:

‘1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.

Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.

In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.

2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.’

11Article 188 of the VAT Directive provides:

‘1. If supplied during the adjustment period, capital goods shall be treated as if they had been applied to an economic activity of the taxable person up until expiry of the adjustment period.

The economic activity shall be presumed to be fully taxed in cases where the supply of the capital goods is taxed.

The economic activity shall be presumed to be fully exempt in cases where the supply of the capital goods is exempt.

2. The adjustment provided for in paragraph 1 shall be made only once in respect of all the time covered by the adjustment period that remains to run. However, where the supply of capital goods is exempt, Member States may waive the requirement for adjustment in so far as the purchaser is a taxable person using the capital goods in question solely for transactions in respect of which VAT is deductible.’

12Article 189 of the VAT Directive provides:

‘For the purposes of applying Articles 187 and 188, Member States may take the following measures:

define the concept of capital goods;

specify the amount of the VAT which is to be taken into consideration for adjustment;

adopt any measures needed to ensure that adjustment does not give rise to any unjustified advantage;

permit administrative simplifications.’

13Under Article 250(1) of the VAT Directive:

‘Every taxable person shall submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, in so far as is necessary for the establishment of the basis of assessment, the total value of the transactions relating to such tax and deductions and the value of any exempt transactions.’

Lithuanian law

14Article 65 of the Lietuvos Respublikos pridėnitės vertės mokesč įstatymas (Lithuanian Law on value added tax), as amended by Law No IX-1960 of 15 January 2004, entitled ‘General rules on the adjustment of VAT deductions’, provides:

‘Where, after the filing of the VAT return for a tax period, a VAT payer cancelled purchase of a certain amount of the acquired goods, additional price reductions were obtained from the supplier of goods or services, or the VAT amount payable to the supplier of goods or services has decreased for any other reason, as well as where the taxable person has obtained repayment of an import tax, and the above amounts of the input and/or import VAT were deducted, the VAT deductions shall be adjusted in the VAT return for the tax period in which the above circumstances became known by increasing the VAT amount payable into the budget or reducing the VAT amount refundable from the budget accordingly.’

15Article 83(1) of the Law on value added tax provides:

‘Where, after documenting the supply of goods or services, the taxable amount and/or quantity of the goods or services subject to taxation changes, a rebate is granted, the goods (or a portion of the goods) are returned to the vendor, the order for the goods (or a portion of the goods) or services is cancelled, or where the consideration payable by the purchaser/customer changes for any other reason, a credit document recording the above changes must be issued by the person who issued the initial accounting document recording the supply of goods or services. By mutual agreement of the parties, the restitution of goods or the cancellation of services can be put on a formal footing, not by a credit document drawn up by the supplier of the goods or services, but by a debit document (note) drawn up by the purchaser (the customer), when the latter is liable for VAT.’

16Article 68(1) of the Lietuvos Respublikos mokesčių administravimo įstatymas (Lithuanian Law on Tax Administration), in the version of Law No IX-2112 of 13 April 2004, provides:

‘Unless otherwise provided in this Article or by the Law on the tax concerned, the taxpayer or the tax authority may calculate or recalculate the tax in respect of a period not exceeding the current calendar year and five preceding calendar years counting back from 1 January of the year in which the tax was initially calculated or recalculated.’

17Article 80(1) of that law is worded as follows:

‘A taxpayer shall have the right to adjust the tax return if the period for the calculation (recalculation) of taxes laid down in Article 68 of this Law has not expired.’

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

18SEB Lizingas UAB, whose successor in law is SEB bankas, with which it merged in November 2013, purchased six plots of land in March 2007 from VKK Investicija for the sum of 4800000 Lithuanian litas (LTL), being approximately EUR 1387200, inclusive of VAT. At the time of the transaction, the parties regarded it as a supply of building land, which is subject to VAT. Consequently, SEB Lizingas paid the amount of VAT due on that transaction and deducted it from the VAT payable in respect of March 2007.

19At the same time, SEB Lizingas handed the plots of land over to VKK Investicija under the terms of a leasing contract. However, the latter company having failed to fulfil its obligations under the leasing contract, SEB Lizingas unilaterally terminated that contract in March 2009.

20On 14 April 2010, VKK Investicija issued a credit note in the name of the applicant, which stated that, no VAT being due, the price inclusive of VAT shown on the initial invoice was the price excluding VAT, and issued a new invoice which stated that the price to be paid was LTL 4800000, with no mention of VAT. VKK Investicija considered that the sales transaction at issue ultimately was not a supply of building land and was therefore not subject to VAT. It thus submitted a revised VAT return for March 2007.

21SEB Lizingas, which had refused to recognise the credit note and the new invoice and adjust the deduction made in March 2007 in line with those documents, was subject to a tax inspection in 2012. Considering that the supply of land at issue was in fact an exempt transaction, the tax authority ordered, by a decision of 16 May 2014, the payment of the unduly deducted VAT plus default interest and imposed a fine on SEB bankas.

22SEB bankas contested that decision before the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Commission on Tax Disputes under the Government of the Republic of Lithuania), which partially annulled the decision in so far as it concerned the VAT due and related amounts. The tax authority brought proceedings before the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court, Lithuania) in which it sought to have that part of the decision of the Commission on Tax Disputes set aside. The court dismissed the action. The tax authority appealed against the judgment delivered by the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court) before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania).

23The referring court considered that this case came within the scope of the interpretation and application of EU law.

24In those circumstances, the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Must Articles 184 to 186 of the VAT Directive be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, the deduction adjustment mechanism provided for in the VAT Directive is not applicable in cases where an initial deduction could not have been made at all because the transaction in question was a VAT-exempt transaction relating to the supply of land?

Is the answer to the first question affected by the fact that (1) the VAT on the purchase price of the plots of land was initially deducted because of the tax authority’s practice under which the supply in question was incorrectly regarded as being a supply of building land subject to VAT, as provided for in Article 12(1)(b) of the VAT Directive; and/or (2) after the initial deduction made by the purchaser, the supplier of the land issued a VAT credit note to the purchaser adjusting the amount of VAT shown on the initial invoice?

If the answer to the first question is in the affirmative, are, in circumstances such as those at issue in the main proceedings, Articles 184 and/or 185 of the VAT Directive to be interpreted as meaning that, in a case where an initial deduction could not have been made at all because the transaction in question was exempt from VAT, the taxable person’s obligation to adjust that deduction must be considered to have arisen immediately or only when it became known that the initial deduction could not have been made?

If the answer to the first question is in the affirmative, is, in circumstances such as those at issue in the main proceedings, the VAT Directive, and in particular Articles 179, 184 to 186 and 250 thereof, to be interpreted as meaning that the adjusted amounts of deductible input VAT must be deducted in the tax period in which the taxable person’s obligation and/or right to adjust the initial deduction arose?’

Consideration of the questions referred

Preliminary observations

25As a preliminary point, it should be recalled that Article 184 of the VAT Directive sets out the obligation to adjust the initial deduction where it is higher or lower than that to which the taxable person was entitled. Article 185(1) of the VAT Directive further provides that that obligation applies, in particular, when, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted. Paragraph 2 of that article lists the situations in which, by way of derogation, no adjustment is to be made. Under Article 186 of that directive, Member States are required to lay down the detailed rules for applying Articles 184 and 185 of the VAT Directive.

26Thus, the provisions of Articles 184 and 185, to which the first question referred for a preliminary ruling refers, set down an obligation to adjust unauthorised VAT deductions. Whilst illustrating and delimiting that obligation, they do not, however, provide for the manner in which such adjustments are to be made.

27By contrast, Article 186 of the VAT Directive expressly makes Member States responsible for defining the conditions for such adjustments. It is only so far as concerns capital goods and, consequently, in a particular situation, that Articles 187 to 189 of the VAT Directive provide for certain detailed rules for the adjustment of VAT deductions.

28Consequently, a distinction must be made between the extent of the obligation to adjust as set down in Article 184 of the VAT Directive and the scope of the adjustment mechanism described in Articles 187 to 189 of that directive.

The first and second questions

29Inasmuch as the referring court refers, in its first question, both to Articles 184 to 186 of the VAT Directive and to the mechanism for the adjustment of unauthorised VAT deductions provided for by that directive, the question must be reformulated in the light of all the foregoing observations.

30By its first and second questions, the referring court is asking, in essence (i) whether Article 184 of the VAT Directive must be interpreted as meaning that the obligation to adjust undue VAT deductions set down in that article also applies in cases where the initial deduction could not be made lawfully, because the transaction that led to it being made was exempt from VAT and (ii) whether Articles 187 to 189 of the VAT Directive must be interpreted as meaning that the mechanism for the adjustment of undue VAT deductions provided for in those articles is applicable in such cases, in particular in situations such as that at issue in the main proceedings, where the initial VAT deduction was unjustified inasmuch as it concerned a VAT-exempt transaction relating to the supply of land.

31In addition, the referring court is seeking clarification as to the potential impact, for the purposes of the answer to the first question, of (i) the fact that, in the dispute in the main proceedings, the VAT on the purchase price of the land had been paid and deducted wrongly owing to the flawed practice of the tax authority and (ii) the fact that the supplier of that land sent a credit note to the purchaser amending the amount of VAT mentioned on the initial invoice.

32First, it should be noted that the adjustment obligation is defined in Article 184 of the VAT directive as broadly as possible, inasmuch as ‘the initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled’.

33That wording does not exclude, a priori, any foreseeable situation of undue deductions. The general scope of the adjustment obligation is supported by the express enumeration of the derogations permitted by the VAT Directive in Article 185(2).

34In particular, the situation in which a deduction has been made when there was no right of deduction comes within the scope of the first situation envisaged in Article 184 of the VAT Directive, namely that in which the initial deduction made is higher than that to which the taxable person was entitled.

35It is, moreover, consistent with the logic of the common system of VAT that the VAT Directive, which in essence reproduces the provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’), sets down a general obligation to adjust VAT deductions.

36On the one hand, that obligation is, in fact, inextricably linked to that, incumbent on each Member State, to take all legislative and administrative measures appropriate for ensuring collection of all the VAT due on its territory. To that end, the Member States are required to check taxable persons’ returns, their accounts and other relevant documents, and to calculate and collect the tax due (judgment of 17 July 2008, Commission v Italy, C‑132/06, EU:C:2008:412, paragraph 37). Those checks would lack substance if no provision were made for the adjustment of unjustified deductions.

37On the other hand, the general obligation to adjust unjustified VAT deductions also derives from the fiscal neutrality of VAT, which is a fundamental principle of the common system of VAT put in place by the EU legislature in the matter (judgment of 21 February 2006, Halifax, C‑255/02, EU:C:2006:121, paragraph 92 and the case-law cited).

38Under that system, only the input taxes on goods or services used by a taxable person for its taxable transactions may be deducted. The deduction of input taxes is linked to the collection of output taxes. Where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (judgment of 30 March 2006, Uudenkaupungin kaupunki, C‑184/04, EU:C:2006:214, paragraph 24). The principle of the fiscal neutrality of VAT therefore also requires that undue deductions be adjusted in any case.

39It follows from the above that Article 184 of the VAT Directive must be interpreted as meaning that the obligation to adjust undue VAT deductions also applies in cases where the initial deduction could not be made lawfully, as is the case when the transaction which has given rise to that deduction has proved to be amongst those which are exempt from VAT.

40Secondly and by contrast, Articles 187 to 189 of the VAT Directive are not applicable in such cases.

41It is apparent from the second subparagraph of Article 187(2) of the VAT Directive that the adjustment provided for by that provision, so far as concerns capital goods, is made on the basis of the variations in the deduction entitlement which arise subsequent to the acquisition of those goods, their manufacture or their first use. Thus the detailed rules for the adjustment of VAT described in Article 187 of the VAT Directive relate to the particular situation, referred to in Article 185(1) of the VAT Directive, of a change, subsequent to the VAT return, in the factors used to determine the amount to be deducted. They therefore cannot be used to adjust a deduction made in the absence of any initial right of deduction. Some of those rules, such as those on adjustment spread over five years, for which the first subparagraph of Article 187(2) of the VAT Directive provides, are, moreover, manifestly unsuited to such a situation. As regards Article 188 of the VAT Directive, this covers the even more special and equally different situation of the supply of capital goods during the adjustment period.

42Furthermore, the Court has held, with regard to the provisions of the Sixth Directive, which are substantively identical to those of the VAT Directive (judgment of 30 September 2010, Uszodaépítő, C‑392/09, EU:C:2010:569, paragraph 31), that the adjustment mechanism provided for by the Sixth Directive is applicable only where there is a right of deduction (see, to that effect, judgment of 30 March 2006, Uudenkaupungin kaupunki, C‑184/04, EU:C:2006:214, paragraph 37).

43It follows from the above that the mechanism for the adjustment of undue VAT deductions provided for in Articles 187 and 188 of the VAT Directive is not applicable when the deduction was initially made in the absence of any right of deduction. That mechanism is therefore not applicable, inter alia, to a transaction relating to the supply of land, such as that at issue in the main proceedings, which, according to the statements of the referring court, was exempt from VAT and should not, therefore, have given rise either to the collection of that tax or to its deduction.

44Accordingly, the fact that in the dispute in the main proceedings (i) the VAT on the purchase price of the land was wrongly paid and deducted because of a flawed practice on the part of the tax authority and (ii) the supplier of that land sent the purchaser a credit note amending the amount of VAT mentioned on the initial invoice has no impact on the inapplicability of that mechanism.

45In view of the foregoing considerations, the answer to the first and second questions is that Article 184 of the VAT Directive must be interpreted as meaning that the obligation to adjust undue VAT deductions set down in that article also applies to cases where the initial deduction could not be made lawfully because the transaction giving rise to that deduction was exempt from VAT. By contrast, Articles 187 to 189 of the VAT Directive must be interpreted as meaning that the mechanism for the adjustment of undue VAT deductions provided for in those articles is not applicable in such cases, in particular in a situation such as that at issue in the main proceedings, where the initial VAT deduction was unjustified as it concerned a VAT-exempt transaction relating to the supply of land.

The third and fourth questions

46By its third and fourth questions, which it is appropriate to examine together, the referring court is asking, in essence, whether the provisions of the VAT Directive on the adjustment of deductions must be interpreted as meaning that, in cases where the initial VAT deduction could not be made lawfully, they serve to determine the date on which the obligation to adjust the undue VAT deduction arises and the period for which that adjustment must be made.

47Those questions relate to the conditions for VAT adjustment. As stated in paragraph 43 of the present judgment, the VAT adjustment mechanism provided for in Articles 187 to 189 of the VAT Directive is not applicable to a situation such as that at issue in the dispute in the main proceedings. For that reason, it is for the Member States to determine the detailed rules for that adjustment in such cases, pursuant to Article 186 of the VAT Directive.

48However, the Member States must comply with EU law when adopting national legislation establishing those detailed rules. Accordingly, the Court, when requested to give a preliminary ruling, must provide all the guidance as to interpretation needed in order for the national court to determine whether that legislation is compatible with EU law, the observance of which the Court ensures, in particular with its fundamental principles (see, to that effect, judgment of 29 May 1997, Kremzow, C‑299/95, EU:C:1997:254, paragraph 15, and order of 26 March 2009, Pignataro, C‑535/08, not published, EU:C:2009:204, paragraph 22).

49In that regard, SEB bankas has argued in its written observations that it is contrary to the principles of legal certainty and the protection of legitimate expectations to make an adjustment of a VAT deduction concerning a transaction which took place in 2007 when, up until 2013, the tax authority itself defended the view that the transaction was subject to VAT.

50However, it should be recalled, first, that legitimate expectations cannot be founded on an unlawful practice of the authorities (see, to that effect, judgment of 6 February 1986, Vlachou v Court of Auditors, 162/84, EU:C:1986:56, paragraph 6). According to the order for reference, the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania) censured, as based on a misinterpretation of national law, the administrative practice whereby the transaction at issue had initially been classified as ‘a transaction subject to VAT’, such that the initial VAT deduction was unlawful.

51Secondly, it should be stated that the principle of legal certainty does not preclude an administrative practice on the part of national tax authorities consisting in revoking, within a mandatory time limit, a decision in which they acknowledged that the taxable person had a right to a VAT deduction, by demanding that he pay that tax (see, to that effect, judgment of 12 October 2016, Nigl and Others, C‑340/15, EU:C:2016:764, paragraph 48 and the case-law cited).

52However, that principle requires the tax position of the taxable person, having regard to his rights and obligations vis-à-vis the tax authorities, not to be open to challenge indefinitely (see, to that effect, judgment of 6 February 2014, Fatorie, C‑424/12, EU:C:2014:50, paragraph 46 and the case-law cited). For that reason, the fact that the starting point of the mandatory time limit depends on the fortuitous circumstances in which the unlawfulness of the deduction came to light, and, in particular, that it should be set, as the Lithuanian Government claims, at the date of receipt by the purchaser of the credit note whereby the vendor unilaterally adjusted the price, net of VAT, of the land by including the VAT several years after the sale, is likely to breach the principle of legal certainty, a matter which it is for the national court to assess.

53The answer to the third and fourth questions is that Article 186 of the VAT Directive must be interpreted as meaning that, in cases where the initial deduction of VAT could not be made lawfully, it is for the Member States to determine the date on which the obligation to adjust the undue VAT deduction arises and the time period for which that adjustment must be made, in accordance with the principles of EU law, in particular the principles of legal certainty and legitimate expectations. It is for the national court to determine whether, in cases such as that at issue in the main proceedings, those principles have been respected.

Costs

54Since 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 (First Chamber) hereby rules:

Article 184 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the obligation to adjust undue value added tax (VAT) deductions set down in that article also applies to cases where the initial deduction could not be made lawfully because the transaction giving rise to that deduction was exempt from VAT. By contrast, Articles 187 to 189 of Directive 2006/112 must be interpreted as meaning that the mechanism for the adjustment of undue VAT deductions provided for in those articles is not applicable in such cases, in particular in a situation such as that at issue in the main proceedings, where the initial VAT deduction was unjustified as it concerned a VAT-exempt transaction relating to the supply of land.

Article 186 of Directive 2006/112 must be interpreted as meaning that, in cases where the initial deduction of VAT could not be made lawfully, it is for the Member States to determine the date on which the obligation to adjust the undue VAT deduction arises and the time period for which that adjustment must be made, in accordance with the principles of EU law, in particular the principles of legal certainty and legitimate expectations. It is for the national court to determine whether, in cases such as that at issue in the main proceedings, those principles have been respected.

Signatures

[Signatures]

( *1 ) Language of the case: Lithuanian.

OPINION OF ADVOCATE GENERAL

BOBEK

delivered on 20 December 2017 ¹

(Reference for a preliminary ruling — Value added tax (VAT) — Adjustment of deductions — Applicability — Supply incorrectly subjected to VAT — Modification of the invoice by the supplier)

I. Introduction

1Akcinė bendrovė SEB bankas (‘SEB bankas’) purchased plots of land from VKK Investicija UAB (‘the Seller’) for which the latter issued an invoice for payment — inclusive of value added tax. At the time of the sale, both parties considered the land at issue to be ‘building land’, and subject to VAT. Subsequently, SEB bankas obtained a deduction corresponding to the VAT charged.

2Three years later, the Seller took the view that the supply of land at issue should actually have been exempted from VAT. It therefore sent SEB bankas a credit note for the original amount invoiced. It also issued a new invoice for the same amount which did not include any VAT.

3On the basis of a subsequent tax inspection, the Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (State Tax Inspectorate attached to the Ministry of Finance, Lithuania) (‘State Tax Inspectorate’) issued a decision that required SEB bankas to reimburse the amount corresponding to the deduction initially granted. It also required payment of a part of the accrued default interest, and imposed a fine.

4The case eventually came before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania). That referring court now enquires whether or not the recovery sought from SEB bankas falls under the mechanism of adjustment of deductions provided for in the VAT Directive. ² It further asks about the relevance of the credit note issued by the Seller and also of the fact that the reclassification of the land at issue occurred following a change in the practice of the tax administration for the determination of SEB bankas’s tax obligations.

II. Legal framework

1. VAT Directive

5Article 12(1) of the VAT Directive foresees that:

‘Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:

…

the supply of building land.’

6Under Article 135(1) of that directive:

‘Member States shall exempt the following transactions:

…

the supply of land which has not been built on other than the supply of building land as referred to in point (b) of Article 12(1).’

7Chapter 5 of Title X of the VAT Directive concerns ‘adjustment of deductions’. It contains Articles 184 to 192. Article 184 provides that the ‘initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled’.

8Article 185 of the VAT Directive states that:

Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.

2By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.

However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.’

9According to Article 186 ‘Member States shall lay down the detailed rules for applying Articles 184 and 185’.

2. Lithuanian law

10Article 65 of Lietuvos Respublikos pridėtinės vertės mokesčio įstatymas No IX-751 (Lithuanian Law No IX-751 on value added tax) of 5 March 2002, in the version of Law No IX-1960 of 15 January 2004 (‘the VAT Law’), lays down the general rule that ‘if, after filing of the VAT return for a tax period, a VAT payer cancelled purchase of a certain amount of the acquired goods, additional price reductions were obtained from the supplier of goods or services, or the VAT amount payable to the supplier of goods or services has decreased for any other reason … and the above amounts of the input and/or import VAT were deducted, the VAT deductions shall be adjusted, by increasing accordingly, in the VAT return for the tax period in which the above circumstances became known, the VAT amount payable into the budget/reducing the VAT amount refundable from the budget’.

11Article 68(1) of Lietuvos Respublikos mokesčių administravimo įstatymas No IX-2112 (Lithuanian Law No IX-2112 on Tax Administration) of 13 April 2004 (‘the Tax Administration Law’) sets out that ‘… the taxpayer or the tax administration may calculate or recalculate the tax in respect of a period not exceeding the current calendar year and five preceding calendar years counting back from 1 January of the year in which the tax was initially calculated or recalculated’.

12Finally, Article 80(1) of the same law states that ‘a taxpayer shall have the right to adjust the tax return if the period for the calculation (recalculation) of taxes laid down in Article 68 of this Law has not expired’.

III. Facts, national proceedings and the questions referred

13On 28 March 2007, SEB bankas and ‘the Seller’ concluded a contract of sale under which SEB bankas purchased six plots of land (‘the transaction’). On the same day, the Seller issued an invoice to SEB bankas requiring payment of the taxable amount of 4 067 796.61 Lithuanian litas (LTL) and of LTL 732 203.39 VAT. The total amount on the invoice, including the VAT, was LTL 4800000 (‘the 2007 invoice’). SEB bankas included the input VAT in its VAT returns for March 2007 and was granted a deduction.

14On 14 April 2010, the Seller issued a VAT credit note to SEB bankas (‘the 2010 credit note’). On the same day, the Seller issued a new invoice for the same total LTL 4800000 (‘the 2010 invoice’). The latter invoice did not indicate any VAT.

15The Seller submitted revised VAT returns for March 2007. In 2012, the competent tax authority confirmed that the Seller had correctly adjusted its VAT returns for March 2007.

16The order for reference states that SEB bankas did not enter either the 2010 credit note or the 2010 invoice in its accounts. It refused to recognise the 2010 invoice and 2010 credit note, as it considered, in essence, that the Seller was not entitled to change unilaterally the taxable value of the transaction. SEB bankas further considered that under the law in force, the transaction should be considered to be subject to VAT.

17As a result of an inspection report of 28 February 2014, based on a tax inspection carried out with SEB bankas, the State Tax Inspectorate came to the conclusion that SEB bankas was obliged to adjust the VAT deduction and to include in its VAT return for April 2010 the amount of VAT stated in the 2010 credit note.

18On 16 May 2014, the State Tax Inspectorate incorporated the findings from the tax inspection into a tax decision. Furthermore, it stated that LTL 251472 of default interest was payable and imposed a fine of LTL 71 528. It did however waive the obligation for SEB bankas to pay the default interest in part.

19On 10 June 2014, SEB bankas appealed against that tax decision to the Commission for Tax Disputes. On 12 August 2014, the Commission for Tax Disputes annulled the tax decision, because it came to the conclusion that the State Tax Inspectorate had failed to respect the time limit applicable under national law.

20The State Tax Inspectorate brought proceedings against the annulment decision before the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court, Lithuania). On 8 March 2016, that court rejected the State Tax Inspectorate’s application.

21The State Tax Inspectorate then lodged an appeal before Lietuvos vyriausiasis administracinis teismas (Lithuanian Supreme Administrative Court), the referring court. That court suspended the proceedings and referred the following questions to the Court:

Must Articles 184 to 186 of [Council Directive 2006/112] be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, the deduction adjustment mechanism provided for in Directive 2006/112 is not applicable in cases where an initial deduction of value added tax (VAT) could not have been made at all because the transaction in question was an exempt transaction relating to the supply of land?

Is the answer to the first question affected by the fact that (1) the VAT on the purchase of the plots of land was initially deducted because of the tax administration’s practice under which the supply in question was incorrectly regarded as being a supply of building land subject to VAT, as provided for in Article 12(1)(b) of Directive 2006/112, and/or (2) after the initial deduction made by the purchaser, the supplier of the land issued a VAT credit note to the purchaser adjusting the amounts of VAT indicated (specified) on the initial invoice?

If the answer to the first question is in the affirmative, are, in circumstances such as those at issue in the main proceedings, Articles 184 and/or 185 of Directive 2006/112 to be interpreted as meaning that, in a case where an initial deduction could not have been made at all because the transaction in question was exempt from VAT, the taxable person’s obligation to adjust that deduction must be considered to have arisen immediately or only when it became known that the initial deduction could not have been made?

If the answer to the first question is in the affirmative, is, in circumstances such as those at issue in the main proceedings, Directive 2006/112, and in particular Articles 179, 184 to 186 and 250 thereof, to be interpreted as meaning that the adjusted amounts of deductible input VAT must be deducted in the tax period in which the taxable person’s obligation and/or right to adjust the initial deduction arose?’

22SEB bankas, the Lithuanian Government and the European Commission lodged written submissions. They also made oral submissions at a hearing that took place on 4 October 2017.

IV. Assessment

23This Opinion is structured as follows: I start with two preliminary points concerning time limits and (re)classification of the transaction for VAT purposes (A). I shall then turn to the applicability of the adjustment mechanism in this case (B). Finally, I shall examine the relevance of the 2010 credit note and of the effects of (re)classification of the transaction for the VAT purposes (C). In view of my proposed negative answer to the first question, there is no need to answer the third and fourth questions posed by the referring court (D).

A. Preliminary remarks

24There are two variables that affect the assessment in the present case. They were both raised in the submissions of the parties as well as at the hearing. Both are matters of national law to be determined by the referring court. However, in view of the discussion in these proceedings, I wish to start with several preliminary clarifications relating to both points. The first one concerns the possibility that the State Tax Inspectorate’s claim against SEB bankas might effectively be time-barred (1). The second one relates to the classification of the transaction for VAT purposes under national law (2).

1. Time limits applicable to the claim in the main proceedings

25The Commission observes in its written pleadings that, in the light of information provided in the order for reference, the claim brought by the State Tax Inspectorate against SEB bankas appears to be time-barred under national law. The Commission notes that in any case, the national authorities may require the adjustment of deductions only if the applicable time limits have not yet expired.

26Article 68(1) of the Tax Administration Law appears to set a time limit of, in principle, five years in which the tax obligations may be calculated or recalculated. The transaction was carried out in March 2007. It seems (and remains for the referring court to verify) that it was in February 2014 that the official step by which the repayment of the respective amount from SEB bankas was sought — when the results of the tax inspection conducted in respect of SEB bankas were formalised. That was followed by a decision taken by the State Tax Inspectorate in May 2014 which confirmed the findings of that tax inspection, set the amount of default interest, and imposed a fine.

27I would emphasise that the VAT Directive does not contain any rules on time limits that would be relevant for the claim in the main proceedings. These time limits are thus for the Member States to set, subject to the principles of equivalence and effectiveness, ³ as well as the general obligation flowing from the VAT Directive, read in conjunction with Article 4(3) TEU — to take all appropriate measures to ensure collection of all the VAT due on their territory, and fight against tax evasion. ⁴

28Nothing in the order for reference indicates that the time limits set by the national law are not compliant with those general requirements. The Court is not in fact being asked to assess this.

29This Opinion has as its basis the assumption that the action in the main proceedings complies with the applicable time limits and that the reply to the questions posed is useful. If the applicable time limit is considered to have already lapsed (which is for the referring court to determine), that will render the questions referred in the present case hypothetical, save for the specific scenario of time limits that would cause systemic, structural problems by hampering the effective collection of VAT within the Member State in question. ⁵

30Beyond that specific and rather singular scenario, I wish to stress that the VAT Directive cannot be understood as or invoked for extending or eroding clear time limits set by national law. If it is established that the State Tax Inspectorate was out of time to enforce the tax obligation in question vis-à-vis SEB bankas, classification of that tax obligation under such and such heading of the VAT Directive will not change the fact that the claim is time-barred. Out of time means out of time.

2. Classification of the transaction for VAT purposes under national law

31Next, it appears from the order for reference as well as from the submissions made to this Court that the interpretation of the notion ‘building land’ under national law changed over the relevant time period. That change in interpretation appears to have affected the treatment of the transaction for VAT purposes.

32Under Article 135(1)(k) of the VAT Directive, the ‘Member States shall exempt the supply of land which has not been built on other than the supply of building land as referred to in point (b) of Article 12(1)’. Pursuant to the latter provision ‘Member States may regard as a taxable person anyone who carries out, on an occasional basis, … the supply of building land’. Pursuant to Article 12(3), that notion ‘shall mean any unimproved or improved land defined as such by the Member States’.

33Article 12(1) of the VAT Directive provides the Member States with an option to subject ‘building land’ to VAT. ⁶ It appears that Lithuania made use of that option. Whether the land concerned by the transaction can be classified in concreto as ‘building land’ is, however, less clear.

34According to SEB bankas, at the time of the transaction, the land supplied was considered, under national law, to be ‘building land’ and thus subject to VAT. That followed from the official commentary to the VAT Law, apparently published by the State Tax Inspectorate, and from information issued on 10 November 2009 by the tax administration to SEB bankas.

35The Lithuanian Government explained that that classification changed as a result of a decision of the Lietuvos vyriausiasis administracinis teismas (Lithuanian Supreme Administrative Court) that sought to unify previously inconsistent application practice. ⁷ As a result, the land concerned by the transaction was to be regarded as ex tunc (re)classified by the State Tax Inspectorate as not constituting ‘building land’. That in turn led the State Tax Inspectorate to request reimbursement of the deductible amount from SEB bankas.

36I wish to underline that the issue of whether or not that (re)classification of the notion of ‘building land’ is in compliance with EU law is a question that has not been asked by the referring court. It is therefore not touched upon in these proceedings.

37The relevance of the (re)classification is raised in a different context, within the second preliminary question, in view of ascertaining whether or not it has any bearing on the applicability of the adjustment mechanism. Whether, on the factual level, the (re)classification indeed took place is a matter for the national court to determine. For my part, I will again proceed on the assumption that the subject of the transaction should not have been considered as ‘building land’ and that, therefore, the transaction should not have been subject to VAT. In other words, I take as the starting point and as a statement of fact that what is expressed in the wording of the first preliminary question is that the parties incorrectly applied VAT to the transaction.

B. Correction of errors concerning the existence of the right to deduct

38By its first question, the referring court asks, in essence, whether the mechanism for adjustment of deductions under Article 184 et seq. of the VAT Directive applies to correct a situation in which a deduction was granted in error.

39In this part of the Opinion, I first explain that the adjustment mechanism does not apply to the action launched by the State Tax Inspectorate (1). Second, I will consider that even if that mechanism is not applicable, that does not preclude that the repayment of an incorrectly granted deduction must in principle be sought by the tax authorities (2).

1. The applicability of the adjustment mechanism

40I will first outline the type of the correction that appears to be provided for through the adjustment mechanism (a), before distinguishing it from the nature of the correction sought in the main proceedings (b).

(a) The nature of the correction concerned by the adjustment mechanism

41Taxable persons are, under Articles 167 and 168 of the VAT Directive, entitled to deduct the amount of VAT due ⁸ in respect of goods and services supplied by another taxable person in so far as those goods and services are used for the purposes of taxed transactions. ⁹

42As the Court has repeatedly held, the right of deduction provided for in Article 168(a) of the VAT Directive is an integral part of the VAT scheme and in principle may not be limited. That deduction system ‘is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities’. ¹⁰

43More specifically, the adjustment mechanism provided for in Article 184 et seq. of the VAT Directive aims to enhance the precision of VAT deductions by monitoring the extent to which the taxable person actually uses those goods for deductible purposes. ¹¹ The Court explained that ‘that mechanism thus aims to establish a close and direct relationship between the right to deduct input VAT paid and the use of the goods or services concerned for taxable output transactions’. ¹² Through its application, transactions carried out at an earlier stage continue to give rise to the right to deduct only to the extent that they are used to make supplies subject to VAT. ¹³ In this way, the adjustment mechanism contributes to ensuring the neutrality of the tax burden. ¹⁴

44As far as its exact wording is concerned, Article 184 of the VAT Directive states that ‘the initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled’.

45Article 185(1) of the VAT Directive further provides that that adjustment shall, ‘in particular’, be made after the VAT return has been submitted and where some change occurs in the factors used to determine the amount to be deducted. ¹⁵

46Furthermore, the use of the words ‘for example’ show that these factors (namely cancellation of the purchase or price reductions), are not exhaustive. Over the years, related case-law of the Court has also dealt with situations such as demolition and carrying out a construction project, ¹⁶ a theft (where the perpetrator has not been identified), ¹⁷ or a change in the method used to calculate the deduction entitlement for VAT paid for mixed-use goods and services. ¹⁸

47Thus, in general terms, the quoted examples concern factors that may determine the scope of the deduction to which one is entitled and which, by nature, can only be assessed with accuracy over time, due regard being paid to the actual use of the goods in question. That is also confirmed by the logic of Article 187 of the VAT Directive, which provides for yearly adjustment based on the actual use of investment goods.

48The question raised in the present case is whether that adjustment mechanism can apply to correct an initial error in the determination that a given transaction is a taxable one while it is not. Is the correction of such an initial error about whether there is a right to deduct of the same nature as the correction that needs to be made to the scope of a right to deduct because there has been a change concerning the supply at issue? Do both types of corrections trigger application of the same mechanism?

(b) The nature of correction sought in the present case

49The correction sought in the present case aims at remedying a situation in which the competent tax authority granted a VAT deduction although that deduction apparently should have never been granted at all. As a result of that error the tax authorities requested repayment of the amount corresponding to the deduction granted. Is it possible for that correction to tax obligations to fall under the scope of the VAT adjustment mechanism?

50Not according to SEB bankas. That party considers that first, there was no change to the relevant factors affecting its right to deduct subsequent to the transaction. There was therefore no obligation for it to adjust its VAT obligations. The only change that occurred was the (re)classification of the transaction for VAT purposes from ‘subject to VAT’ to ‘VAT exempt’, as it was no longer considered to be ‘building land’ under national law. Second, if it were established that the VAT was not due and that, therefore, the deduction was not justified (quod non according to that party), the restitution of the respective amounts is governed by the law of the Member States, not by the VAT Directive.

51The Lithuanian Government argues that the adjustment mechanism is applicable. It bases its position on the wording of Article 184 of the VAT Directive, on the objectives pursued by the adjustment mechanism, as well as on the measures by which that mechanism is implemented. Regarding the wording of Article 184, that government points out that the adjustment of the initial deduction is required where the deduction granted is ‘higher or lower than that to which the taxable person was entitled’. Mathematically speaking, where the initial entitlement was zero, it follows that any deduction made was too high and must be adjusted.

52There is no doubt that in the realm of conventional arithmetic, that proposition is correct: any positive number is higher than zero. I am, however, less sure that that equation does justice to the system and logic of the adjustment mechanism.

53Starting with the language of Article 185, which details the conditions under which the adjustment mechanism applies, the term ‘change in the factors used to determine the amount to be deducted’ ¹⁹ would appear to aim at a different scenario to that in the main proceedings. The error that needs to be corrected in the main proceedings does not concern the question how much SEB bankas should have been entitled to deduct, but rather (the question) whether the entitlement to deduct existed at all. In other words, what the State Tax Inspectorate seeks to correct is the wrongful determination as regards the existence of the right to deduct, not the scope of that right.

54I acknowledge that the wording of Article 184, which introduces Chapter 5 of Title X of the VAT Directive on adjustment of deductions, is general and open as to its scope. One can therefore doubt whether it is correct to interpret Article 184, which is expressed in general terms, in the light of the more specific provisions of Article 185. That question is all the more relevant if one considers that the factors provided in Article 185(1) that lead to an adjustment are not exhaustive, as noted above in point 46 of this Opinion.

55That being said, Articles 184 to 186 of the VAT Directive form a logical unit within the Chapter 5 of Title X. Thus, they ought to form one coherent whole, and be interpreted having regard to one another and to the overall purpose of the chapter in question. That overall purpose of the mechanism foreseen by that chapter is to correct the amount of the deduction, not the situation where there was no right to deduct to begin with. Where there is no right of deduction, the scope of an adjustment to that right to deduct is not relevant.

56The latter understanding seems to be confirmed by the finding made by the Court in Uudenkaupungin kaupunki, which concerned the adjustment mechanism provided for in Article 20 of the Sixth Directive (that was, in essence, equivalent to the one existing under the VAT Directive). ²⁰ The case concerned capital goods that were first used in non-taxable activity and that were later used in activity that was subject to VAT (that change occurred during the relevant adjustment period).

57The Court held that the ‘application of the adjustment mechanism depends on the existence of a right to deduct based on Article 17 of the Sixth Directive’. ²¹ The Court concluded that the subsequent emergence of the right to deduct made it possible for the adjustment mechanism to apply. Before reaching the conclusion, the Court confirmed that at the moment of the acquisition, the entity that subsequently claimed the use of the adjustment mechanism was a taxable person.

58The factual scenario of Uudenkaupungin kaupunki was thus different from the case at hand. However, it is still instructive that the applicability of the adjustment mechanism was made conditional upon the existence of the right to deduct (considered, not in relation to the nature of the supply, but to the status of the buyer).

59In the light of the foregoing, I am of the view that the adjustment mechanism does not apply to the action in the main proceedings.

2. The principle of fiscal neutrality requiring the repayment of an unlawfully granted deduction

60I agree with the position expressed, in essence, by the Commission (and acknowledged on a subsidiary basis by SEB bankas) that the incorrectly granted deduction should still be rectified, again naturally subject to the applicable time limits. That rectification, however, ought to happen pursuant to national law. At the same time, the finding that the error committed in the main proceedings does not fall within the adjustment mechanism does not mean that it falls entirely outside the scope of the common system of VAT and the principle of fiscal neutrality.

61As stated in recital 7 to the VAT Directive ‘the common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden …’.

62That burden must be imposed equally on taxpayers who are in similar situations. ²² That neutrality is not however respected if it is established that a taxpayer, such as SEB bankas, benefited from an incorrectly granted VAT deduction. The Member State whose tax authorities have granted that deduction is therefore obliged to make sure that that undue tax advantage is corrected.

63At the concrete level, that means that the Member States have to put into place measures that make it possible for the tax authorities to request from taxpayers, such as SEB bankas, repayment of the amount corresponding to the deduction, pursuant to applicable provisions of national law and subject to clear and foreseeable time limits.

64I note that a similar solution as regards the reference to the respective provisions of national law would be called for even if the adjustment mechanism applied. This is because while Articles 184 and 185 set the material conditions for the application of the adjustment mechanism, Article 186 of the VAT Directive refers to the law of the Member States as regards the procedural arrangements.

65It might be added, for the sake of clarity, that that conclusion does not prevent the Member State from foreseeing at the national level procedural rules that would apply both to correct initial errors as to the classification of a transaction (as VAT exempt or subject to VAT) as well as to adjustment of deductions granted in respect of taxable transactions. The fact that the former does not fall within the adjustment mechanism foreseen by the VAT Directive does not mean that it would have to be kept separate at the national level.

66In the light of the foregoing, my interim conclusion is that Articles 184 to 186 of the VAT Directive are to be interpreted as meaning that the adjustment mechanism provided for in those provisions does not apply in the situation, such as the one in the main proceedings, where an initial deduction of VAT could not have been made at all because the transaction at issue was exempt from VAT. However, the principle of fiscal neutrality requires that the Member State recover the amount corresponding to a VAT deduction unduly granted, pursuant to the applicable provisions of national law.

C. Is the conclusion affected by the specific circumstances of the case?

67By its second question, the referring court asks whether the reply to the first question is affected by the issuance of the 2010 credit note (1), and by the fact that the transaction was first considered as subject to VAT, and was only later treated as exempt from VAT (2).

68In view of my proposed answer to the national court’s first question, the second question can be understood as a matter for national law with no need for guidance from this Court. However, as the second question connects to the first one, it being essentially a further elaboration of it, and in the spirit of cooperation permeating the preliminary rulings procedure, the limited suggestions I can provide on the second question are as follows.

1. Relevance of the 2010 credit note

69The relevance of the 2010 credit note can be considered, in my view, from two different perspectives.

70First, one could ask whether it may have set out a tax obligation for SEB bankas. The answer is clearly no. Subject to verification by the referring court as to the exact legal effects that national law attaches to such a document, I understand the 2010 credit note to be a document issued by a private party, not an official document issued by the tax authority. As such, it may trigger effects for the party issuing it but not in principle for the other party to a transaction. ²³

71Second, one may wonder whether the issuance of the 2010 credit note may have consequences for the applicable time limits, within which the State Tax Inspectorate may change SEB bankas’s tax obligations. That again is a matter for the referring court to consider.

72There are systems in which national law may provide not only for an ‘objective’ (that is absolute) time limit but also for a ‘subjective’ (that is relative) one. The running of the objective time limit is likely to be triggered by the occurrence of a specific event independently of knowledge of the respective party. The subjective one is triggered when that party acquires the knowledge that the relevant event occurred.

73If that were the case under national law, it could be argued that upon receipt of the 2010 credit note, SEB bankas learned of the fact that it needed to correct its VAT returns. Thus, such a credit note could perhaps be construed as the starting point of the subjective time limit.

74That being said, even if the national law provided for a subjective time limit, it is normally the case that the subjective time limit cannot extend and run beyond the end of the objective one. The running of the subjective time limit may thus start later, but ends at the latest with the end of the objective time limit. Thus, also in this second potential dimension, I have difficulty seeing how exactly the 2010 credit note would be relevant as far as time limits are concerned in the main proceedings.

75Thus, on the elements as presented to the Court, I do not consider that the 2010 credit note is relevant for the assessment of SEB bankas’s tax obligations.

2. Relevance of the (re)classification of the transaction

76In contrast to the 2010 credit note issued by the Seller, the interpretative practice and the specific conduct of the tax administration vis-a-vis SEB bankas matter for the assessment of SEB bankas’s tax obligations. This is because, subject to the factual assessment by the national court, they might have given rise to SEB bankas’s legitimate expectations as to the scope of its obligations, depending on the nature and content of the assurances provided to it. ²⁴

77The Lithuanian Government recognises that when the transaction occurred, the ‘official’ interpretation of what was to be considered as ‘building land’ justified the conclusion that that transaction was subject to VAT. At the same time, that government also noted that that interpretation changed, following a judgment of the Lietuvos vyriausiasis administracinis teismas (Lithuanian Supreme Administrative Court), delivered in 2009. ²⁵

78As the Court recalled in Nigl and Others, ‘the principle of legal certainty does not preclude the tax authorities from carrying out, within [the applicable time limits], an assessment for VAT relating to the deducted tax or to services already provided and which should have been subject to VAT’. The Court also held that this is equally true when ‘a scheme from which a taxable person for VAT purposes benefits is called into question by the tax authorities, including for a period prior to the date on which such an appraisal is issued, but provided that that appraisal occurs within the limitation period for action on the part of those authorities, and its effects do not apply retroactively to a date earlier than that on which the legal and factual elements on which it is based occurred’. ²⁶

79The same logic appears to hold also for the present case. If the time period for the assessment of SEB bankas’s tax obligations is to some extent still open, that is, that the reassessment and recalculation is still allowed because the case remains within the applicable time limits, and if within that period a decision of a higher national court (such as a supreme administrative court) unifies previously inconsistent interpretative practice, the uniform interpretation thus provided may have incidental effects on the interpretation of law to be given in all ongoing cases where that interpretation is of relevance.

80Such incidental retrospectivity of decisions of higher courts is, as a matter of fact, quite common. ²⁷ It is the logical consequence of such interpretative decisions, which graft themselves onto the interpreted legislation in question, thus being (unless such effects are explicitly excluded) applicable ex tunc, together with the legislation that was being interpreted.

81It could be suggested, as appeared to be the argument of the Commission at the hearing, that with regard to a taxable period that has already lapsed, the application of an interpretative decision of a higher national court would no longer be only retrospective, but truly retroactive.

82I do not agree. Until and unless the time period for the recalculation and readjustment provided for in the national law lapses, the assessment of that taxable period is not truly closed. The reassessment is still open and, it might be added that it is open not only for the tax administration, but also for the taxpayer. Thus, within that period, it is also the taxpayer that might wish to invoke an interpretative unification by the decision of a higher national court to his benefit. Put metaphorically, an open window is opened both ways.

83However, even if, within the applicable time limits, it is, strictly speaking, possible for the tax authorities to take into account and apply a decision of a higher national court that unified previously inconsistent interpretation of the law, this does not release the competent tax authorities from searching, in each individual case, for a fair balance between the need for uniform application of the law and the particular circumstances of the individual’s case, which might have given rise to legitimate expectations on the part of the taxpayer.

84In the case at hand, it would, for instance, be conceivable that a fair balance between the possible legal necessity to correct the classification of the transaction and the protection of SEB bankas’s legitimate expectations (if following the factual assessment it could be said that those were indeed generated by the behaviour of national authorities) could perhaps lie in allowing for the reclassification of the transaction, while not penalising SEB bankas in any way, that is, by not imposing any default interest or fine upon it. ²⁸

85In the light of the above, my conclusion is that the response to the first preliminary question is not affected by the issuance of the 2010 credit note. However, when the competent authorities correct the tax obligations of a taxable person, such as SEB bankas, following a (re)classification of a supply for VAT purposes, such as the supply of land in the main proceedings, these authorities shall strike an appropriate balance between obligations to ensure fiscal neutrality and uniform application of the law and that person’s legitimate expectations.

D. Questions three and four

86Although the hypotheses introducing questions three and four in relation to the exact wording of the first question are not crystal clear, from the underlying logic of the order for reference, I understand that the referring court’s third and fourth questions are asked only if the adjustment mechanism were found to be applicable to the case in the main proceedings.

87Since I am of the view that the adjustment mechanism does not apply to the action in the main proceedings, there is therefore no need to answer questions three and four.

V. Conclusion

88In the light of the foregoing, I suggest that the Court respond to Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania) as follows:

Articles 184 to 186 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax shall be interpreted as meaning that the adjustment mechanism provided for in those provisions does not apply in the situation, such as the one in the main proceedings, where an initial deduction of value added tax could not have been made at all because the transaction at issue was exempt from value added tax. However, the principle of fiscal neutrality requires that the Member State recover the amount corresponding to a value added tax deduction unduly granted, pursuant to the applicable provisions of national law.

When the competent authorities correct tax obligations of a taxable person, following a (re)classification of a supply for value added tax purposes, such as the supply of land in the main proceedings, these authorities shall strike an appropriate balance between the obligations to ensure fiscal neutrality and the uniform application of the law and that taxable person’s legitimate expectations.

¹ Original language: English.

² Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

³ On the principle of effectiveness in this context, see judgment of 14 June 2017, Compass Contract Services (C‑38/16, EU:C:2017:454, paragraph 42 and the case-law cited).

⁴ See, in this sense, judgments of 7 November 2013, Tulică and Plavoşin (C‑249/12 and C‑250/12, EU:C:2013:722, paragraph 41 and the case-law cited), and of 8 September 2015, Taricco and Others (C‑105/14, EU:C:2015:555, paragraph 36 and the case-law cited).

⁵ See in this sense, judgment of 8 September 2015, Taricco and Others (C‑105/14, EU:C:2015:555, in particular paragraphs 46 and 47). But see judgment of 5 December 2017, M.A.S. and M.B. (C‑42/17, EU:C:2017:936, paragraphs 51-58).

⁶ Judgment of 15 September 2011, Słaby and Others (C‑180/10 and C‑181/10, EU:C:2011:589, paragraph 33 and the case-law cited). Concerning the scope of the Member States’ discretion in the context of Article 12 of the VAT Directive, see judgment of 16 November 2017, Kozuba Premium Selection (C‑308/16, EU:C:2017:869, paragraph 44 et seq. and the case-law cited).

⁷ In this regard, the Lithuanian Government referred in particular to the judgment of (the Grand Chamber of) the Lietuvos vyriausiasis administracinis teismas (Lithuanian Supreme Administrative Court) of 7 December 2009, A‑438-1346/2009.

⁸ See, for example, judgments of 13 December 1989, Genius Holding (C‑342/87, EU:C:1989:635, paragraph 13); of 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraph 53); and of 6 February 2014, Fatorie (C‑424/12, EU:C:2014:50, paragraph 39).

⁹ Judgment of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 18 and the case-law cited). See also Opinion of Advocate General Kokott in Mateusiak (C‑229/15, EU:C:2016:138, point 24 and the case-law cited).

¹⁰ Judgments of 21 March 2000, Gabalfrisa and Others (C‑110/98 to C‑147/98, EU:C:2000:145, paragraph 44 and the case-law cited); of 30 September 2010, Uszodaépítő (C‑392/09, EU:C:2010:569, paragraphs 34 and 35 and the case-law cited); and of 22 March 2012, Klub (C‑153/11, EU:C:2012:163, paragraphs 35 and 36 and the case-law cited).

¹¹ See, in particular, Opinion of Advocate General Kokott in TETS Haskovo (C‑234/11, EU:C:2012:352, points 27 and 28).

¹² See judgment of 13 March 2014, FIRIN (C‑107/13, EU:C:2014:151, paragraph 50 and the case-law cited).

¹³ See, for example, judgments of 16 June 2016, Mateusiak (C‑229/15, EU:C:2016:454, paragraph 28 and the case-law cited), and of 13 March 2014, FIRIN (C‑107/13, EU:C:2014:151, paragraph 50 and the case-law cited).

¹⁴ Order of 5 June 2014, Gmina Międzyzdroje (C‑500/13, EU:C:2014:1750, paragraph 24 and the case-law cited).

¹⁵ Judgment of 16 June 2016, Mateusiak (C‑229/15, EU:C:2016:454, paragraph 29 and the case-law cited). See also judgment of 16 June 2016, Kreissparkasse Wiedenbrück (C‑186/15, EU:C:2016:452, paragraph 47).

¹⁶ Judgment of 29 November 2012, Gran Via Moineşti (C‑257/11, EU:C:2012:759, paragraphs 37 to 42). See similarly judgment of 18 October 2012, TETS Haskovo (C‑234/11, EU:C:2012:644, paragraphs 32 to 37).

¹⁷ The scenario of theft is addressed in the first subparagraph of Article 185(2) of the VAT Directive. Judgment of 4 October 2012, PIGI (C‑550/11, EU:C:2012:614).

¹⁸ Judgment of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft GbR (C‑332/14, EU:C:2016:417, paragraphs 37 to 47).

¹⁹ Emphasis added.

²⁰ Judgment of 30 March 2006, Uudenkaupungin kaupunki (C‑184/04, EU:C:2006:214). See paragraph 1 of Article 20 of the Sixth Directive entitled ‘Adjustments of deductions’. Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

²¹ Judgment of 30 March 2006, Uudenkaupungin kaupunki (C‑184/04, EU:C:2006:214, paragraph 37). See also judgment of 2 June 2005, Waterschap Zeeuws Vlaanderen (C‑378/02, EU:C:2005:335, paragraph 44) where the Court held that ‘a body governed by public law which purchases capital goods as …a non-taxable person, and subsequently sells those goods as a taxable person, is not entitled, in respect of that sale, to a right of adjustment based on Article 20 of that directive in order to deduct the VAT paid on the purchase of those goods’. See also order of 5 June 2014, Gmina Międzyzdroje (C‑500/13, EU:C:2014:1750).

²² See, by analogy, judgment of 14 June 2017, Compass Contract Services (C‑38/16, EU:C:2017:454, paragraphs 30 to 32 and the case-law cited) which concerns the national rules on repayment, to the issuer of an invoice, of overpaid VAT. Similarly, the Court held that to ensure the neutrality of VAT, it is for the Member States to provide, in their domestic legal systems, for the possibility of adjusting any tax improperly invoiced where the person who issued the invoice shows that he acted in good faith or where the issuer of the invoice has in sufficient time wholly eliminated the risk of any loss in tax revenues — judgment of 18 June 2009, Stadeco (C‑566/07, EU:C:2009:380, paragraphs 36 and 37 and the case-law cited). See also 19 September 2000, Schmeink & Cofreth and Strobel (C‑454/98, EU:C:2000:469, paragraphs 56 to 58).

²³ See, similarly, judgment of 31 January 2013, Stroy trans (C‑642/11, EU:C:2013:54, paragraphs 41 to 44).

²⁴ Judgments of 9 July 2015, Cabinet Medical Veterinar Tomoiagă Andrei (C‑144/14, EU:C:2015:452, paragraph 43 and the case-law cited), and Salomie and Oltean (C‑183/14, EU:C:2015:454, paragraph 44 and the case-law cited). See also judgment of 14 September 2006, Elmeka (C‑181/04 to C‑183/04, EU:C:2006:563, paragraph 32 and the case-law cited).

²⁵ See above footnote No 7.

²⁶ Judgment of 12 October 2016 (C‑340/15, EU:C:2016:764, paragraphs 48 and 49 and the case-law cited).

²⁷ Recently discussed, in the context of the temporal applicability of the decisions of this Court in the area of VAT, for example in my Opinions in Cussens and Others (C‑251/16, EU:C:2017:648, point 35 et seq.) and in Scialdone (C‑574/15, EU:C:2017:553, point 179).

²⁸ As noted above (see point 18 of this Opinion) it follows from the order for reference that the State Tax Inspectorate waived in part the obligation for SEB bankas to pay the accrued default interest.