CJEU limits procedural hurdles to right to deduct input VAT

The EU’s General Court ("the Court") has issued a relevant judgment in which, once again, it analyzes the impact of the substantive and formal requirements on the right to deduct input VAT. In the judgment, the Court analyzes the need for taxpayers to possess an invoice to be able to exercise the right to the deduction and, more specifically, the impact of the invoice reception date on the VAT settlement period from which it is possible to exercise the right to deduct input VAT.

We refer to the Judgment of February 11, 2026 (case T-689/24, ECLI:EU:T:2026:113), in which the Court analyzes Polish VAT rules, based on the preliminary issue raised in the framework of a dispute about the deduction of input VAT paid by a Polish entity in relation to certain invoices. Specifically, the invoices documented transactions carried out in a certain settlement period, but which were received in the following period, before submission of the VAT return corresponding to the period in which the transactions were carried out. The applicable Polish rules established that the right to deduct did not arise before the period in which the invoice was received, which, in practice, led the Polish tax authorities to conclude that the deduction could not be exercised in the settlement period in which the tax had accrued, despite the substantive requirements being met and the invoice being received before submission of the settlement of the mentioned period.

The judgment analyzes the Polish rules and the correct transposition of Directive 2006/112/EC for VAT —articles 167, 168.a) and 178.a)— ("the Directive"), as well the guiding criterion needed to safeguard the principles of neutrality, effectiveness and proportionality. We highlight that (i) article 167 of the Directive specifies that the right to deduct arises when the deductible tax becomes chargeable, and (ii) article 178.a) of the Directive requires that the taxpayer holds the corresponding invoice to be able to exercise the right to deduction.

The Court highlights that the right to deduct is a fundamental principle of the common VAT system (articles 167 et seq. of the Directive), aimed at releasing the taxpayer from the burden of the input VAT in the framework of its taxed economic activities, thus ensuring tax neutrality.

The origin of the right of deduction is determined by the VAT accrual: the right arises when the tax is chargeable, i.e., when the goods are delivered or the services are performed.  However, for exercise of the right, the Directive requires concurrence of the following:

• substantive requirements: goods or services acquired by a taxpayer, used for the purposes of the taxed transactions where the goods or services are supplied by another taxable person (article 168.a) of the Directive); and
• formal requirements: consisting of obligations regarding invoicing, accounting and tax returns, including the holding of an invoice (article 178.a) of the Directive).

The Court specifies that the difference between the two types of requirements is fundamental as, according to settled case law "the fundamental principles of VAT neutrality and proportionality require deduction of input tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. (…) The Court has also specified that the non-compliance with formal requirements, which may be remedied, is not such as to call into question the proper functioning of the VAT system".

The Court considers that the Polish rules introduce an additional requirement for the origin of the right (the invoice must be received during the settlement period) that is not established in the Directive, which only requires (in article 178) the existence of an invoice as a condition for exercising the right.

The Court considers that a rule, such as the Polish one, which prevents the taxpayer from exercising the right to deduction during the settlement period in which the tax accrued—even though the corresponding invoice was available at the time of submission of the mentioned self-assessment—requires the taxpayer to temporarily bear the VAT burden, thus breaching the principles of VAT neutrality and proportionality, and the immediate character of the deduction of input VAT paid.

Lastly, the Court also does not accept that a restriction like that can be imposed within the framework of the national measures to combat fraud (article 273 VAT Directive) that Member States can establish, as those measures must respect the principle of proportionality and must not go beyond what is necessary.

According to the Court, a general measure that, without considering the specific circumstances, systematically defers exercise of the right to deduct for all taxable persons, even when the invoices are available at the time the VAT returns are submitted isdisproportionate. In a case such as the main dispute, in which the taxpayer holds the invoice when it submits the VAT return, there is no specific risk that justifies the restriction on the right of deduction.

We can summarize the CJEU doctrine arising from this judgment as follows:

• the origin of the right of deduction cannot be conditioned by additional formal requirements imposed by the Member States;
• the requirement to hold an invoice does not allow for deferral of the exercising of the right to deduct when the taxpayer already meets the substantive requirements and has the invoice when submitting the self-assessment for the period in which the tax accrued; and
• the national measures for controlling and combating fraud cannot, generally and automatically, impede or delay the effective exercise of the right to deduct.

This judgment will have practical effects in several European Union Member States as it clearly challenges the criterion followed by some of them. The Spanish tax authorities will also have to review their interpretative criterion on the matter and, more specifically, regarding article 97 Act 37/1992 on VAT—similar to article 178 VAT Directive. 

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