VAT blogger Kelvin Hulsebos picked up a very interesting ruling of the European Court of Justice (ECJ) regarding pricing. As you know, the ECJ is the European Supreme Court, and EU country are required to change their laws and practices as per the court’s rulings.
The court ruled:
“When the price of a good has been established by the parties without any reference to value added tax and the supplier of that good is the taxable person for the value added tax owing on the taxed transaction, in a case where the supplier is not able to recover from the purchaser the value added tax claimed by the tax authorities, the price agreed must be regarded as already including the value added tax.”
In short: if parties don’t explicitly agree on whether the price is VAT inclusive or exclusive, and the buyer doesn’t pay the tax, the VAT due by the seller is included in the sales price.
For example: B agrees to buy from S goods, at a price of $100. No tax is charged as a separate line item, and B only pays $100. Assuming 20% VAT, S is now liable to account for 20/120 of $100 is $16.67 VAT.
And subsequently, I would think, S must issue a tax invoice to B with the $16.67 VAT (assuming that B is a business). B “should” be able to recover the VAT (but there are at least a dozen reasons why that would not be possible).
However, the ECJ says:
“The situation is otherwise when the supplier has the possibility under national law of adding to the agreed price a supplement equal to the tax applicable to the transaction and recovering it from the purchaser of the good.”
So under local civil law, if S can claim the additional VAT from B, then the 20% VAT on top of the $100 (20/100 instead of 20/120) is due by S.
Got it? Happy Friday!
via EU: cases Tulică and Plavoşin | Kelvin Hulsebos.
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