VAT De-registration: the CJEU decision in the Promexor case

08 December 2021

On 18 November 2021, the Court of Justice of the European Union (the “CJEU”) delivered its judgment in Case C-385/20 (Promexor Trade SRL v Directia Generala a Finantelor Publice Cluj – Administratia Judeteana a Finantelor Publice Bihor). Promexor is a Romanian company whose VAT number was revoked by the local tax authorities following a period of six months in which its VAT returns did not record any transactions subject to VAT. Under Romanian legislation, a company whose VAT number has been revoked could re-register and retroactively deduct input VAT for the period when it was not registered. However, in this case, Promexor was prevented from doing so because its director was also a shareholder of a company that was going through insolvency proceedings.

The key reasons for the CJEU finding for the taxpayer were:

  • The deduction of input tax must be allowed if the substantive requirements are satisfied, even if certain formal requirements are not.
  • The principle enshrined in Ablessio (C-527/11) that a Member State cannot refuse to assign a VAT number to a taxable person without legitimate grounds was reaffirmed.
  • Refusing to assign a VAT number to a company merely because its director is a partner in another company which is subject to insolvency proceedings is not a legitimate ground.
  • A country can continue to levy output VAT on the transactions of a taxpayer that no longer has a VAT number, provided that taxpayer can re-register for VAT purposes and deduct the input VAT paid.

CJEU Judgements after Brexit

Following the European Union (Withdrawal) Act 2018 (the “WA”), UK courts are no longer bound by principles laid down by the CJEU and general principles of EU law are not part of UK domestic law if they were not recognised as such in a case decided before Brexit. In addition, Chapter 5 of the Trade and Cooperation Agreement between the UK and the EU, which governs tax issues, does not establish any exceptions regarding VAT legislation, only obligations related to fraud.  The WA, however, does allow UK courts to consider CJEU decisions post-Brexit if they are relevant to any matter before a UK court.

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