Can a technical failure be grounds for refusing a VAT refund in another EU Member State?

The Value Added Tax (VAT) Law and Cabinet Regulation No. 1514 set out the procedure by which a Latvian VAT payer can request a refund of VAT paid in another European Union Member State. This procedure applies in situations where a Latvian company has paid VAT in another Member State for goods or services (e.g., fuel, vehicle rental, etc.), but does not have a registered VAT number, place of business, or permanent establishment in that country.

In such cases, the only way to recover the paid VAT is to submit a refund application to the tax administration of the respective Member State using the Electronic Declaration System (EDS) of the State Revenue Service of Latvia.

Although the application submission procedure itself is relatively simple, situations can arise in practice where technical problems occur for reasons beyond the taxpayer’s control—for example, the submitted file cannot be opened or is corrupted. The question arises: in such cases, is the tax administration of another Member State allowed to refuse the VAT refund?

Such a situation was recently analyzed by the Court of Justice of the European Union (CJEU). Although it might intuitively seem that a technical failure cannot be grounds for refusal, in practice, the tax administrations of certain Member States and courts at various levels did not agree. It was considered that a corrupted application could be ignored entirely, and furthermore, the taxpayer might not even be informed of this. Such an approach would effectively deprive the entrepreneur of the right to recover the paid tax due to technical problems of the authorities.

Decision of the Court of Justice of the European Union

The Court emphasized that the right to a VAT refund is an integral part of the VAT system and cannot be unreasonably restricted. A VAT refund application is considered submitted if the taxpayer has provided all the information required by regulatory enactments and has sent it electronically through the portal of their Member State of registration.

At the same time, the CJEU highlighted the principle of good administration. If the tax administration is unable to open the submitted application for technical reasons, it is obliged to inform the taxpayer (directly or through the administration of another Member State) and provide an opportunity to rectify the deficiencies, for example, by resubmitting the documents.

Thus, the tax administration cannot rely on a technical failure to consider that the application has not been submitted at all if it has actually been received.

Additionally, the CJEU pointed out that the taxpayer may appeal the decision to reject the refund application in accordance with the procedure established by the respective Member State. If the administration does not make a decision and there is no clear procedure for resolving such a situation, it may be equated to a rejection of the application, which in turn grants the right to file a complaint.

What does this mean for businesses?

To reduce the risk of losing the right to a VAT refund, it is recommended to:

1. monitor the application processing deadlines set by the respective Member State;
2. ensure that the submitted documents are technically correct and legible;
3. seek legal support in a timely manner in cases where no response is received within the specified deadlines;
4. if necessary, use legal remedies against the inaction of the tax administration.

This approach allows for the effective protection of the taxpayer’s rights and prevents situations where the opportunity to recover legally entitled VAT is lost due to formal or technical reasons.