For most companies operating within the European Union, VAT recovery can often be a painful, part of doing business. Between navigating local tax legislation, supplier invoicing mistakes, and evolving case law, recovering VAT that was wrongly charged can become more than just an administrative headache.
One legal doctrine, however, has continued to offer hope to businesses that find themselves out of pocket due to these complexities. Usually, if a supplier incorrectly charges VAT, the recipient must seek reimbursement from the supplier. However, the Reemtsma principle provides an exception to this practice. First established in a 2007 ruling by the Court of Justice of the European Union (CJEU), this principle provides for an exception, in which businesses can, under very specific conditions, seek a VAT refund directly from the tax authorities, when traditional recovery routes are no longer viable.
In this article, we unpack the origin of the Reemtsma principle, the growing body of case law around it, and what it means for companies navigating complex VAT recovery scenarios today.
To understand how the Reemtsma principle came to be, we need to go back to a dispute involving a German tobacco manufacturer, Reemtsma Cigarettenfabriken GmbH. The company had been incorrectly charged Italian VAT on services rendered in Italy. Due to complications with the supplier (specifically, its’ insolvency) Reemtsma found itself unable to recover the VAT through normal supplier correction procedures.
The case reached the CJEU, which ruled that if recovering unduly paid VAT from a supplier is “impossible or excessively difficult,” then the purchaser should be entitled to seek reimbursement directly from the tax authorities of the Member State where the VAT was paid.
This landmark decision gave rise to what is now known as the Reemtsma principle, a lifeline for businesses facing dead ends in their VAT recovery efforts.
Although the original case was settled over a decade ago, the principle continues to be tested and clarified in EU courts. In fact, in just the past three years, multiple high-profile rulings have expanded or fine-tuned its application, providing much-needed guidance for businesses and tax professionals alike.
Let’s explore some of the most recent and impactful cases that have redefined how the Reemtsma principle can be applied.
In 2015, Hungarian company HUMDA Magyar Auto-Motorsport (“HUMDA”) was charged Hungarian VAT on services related to the construction of a pavilion in Italy. As per EU VAT rules, the place of supply for immovable property-related services is the location of the immovable property, meaning Italian VAT should have applied and not Hungarian VAT.
HUMDA’s supplier had gone into liquidation, preventing the company from requesting a correction. The Hungarian tax authority, in turn, denied the company’s right to claim the VAT directly.
When the matter reached the CJEU, the court sided with the taxpayer, stating that when the correct VAT cannot be recovered due to supplier insolvency and when there is no risk of lost tax revenue, then the tax authority must allow the business to apply directly for a refund.
Key takeaway:
The Reemtsma principle applies even in cross-border transactions when VAT is charged incorrectly due to the misapplication of place of supply rules and recovery through the supplier is no longer possible.
Another grey area was addressed in 2023 in a case involving a business owner who had paid VAT on goods but later realised it had been invoiced and paid 19% VAT on goods purchased instead of 7%. The German tax authority refused to allow Schütte to deduct the higher amount. Schütte approached his suppliers who refused to refund the overpaid amount, on the basis that the statutory correction period had expired.
Schütte then sought a refund from the tax authority, who rejected the claim, arguing that since the correction deadline had lapsed, the VAT could not be refunded. The CJEU disagreed.
The CJEU ruling emphasised that a purchaser shouldn’t lose the right to reimbursement simply because the supplier’s correction window has closed. If there’s no evidence of fraud, abuse, or negligence and no risk to tax revenues, the recipient of the service should still be allowed to recover the VAT directly from the authorities when the supplier has raised the defence of limitation
A similar judgment followed shortly after in the Greentech case (Case C-640/230), where Romanian tax authorities disallowed a VAT refund because the period for correction had passed. Again, the court affirmed that VAT neutrality and the principle of effectiveness override national limitations.
Key takeaway:
Reemtsma claims are valid even after supplier correction deadlines, as long as other conditions (like absence of fraud and loss of tax revenue) are met.
In contrast to the pro-taxpayer rulings above, a 2024 case clarified the limits of the Reemtsma principle.
In H GmbH v Finanzamt M, a supplier had incorrectly charged German VAT instead of the VAT due in another Member State (Italy). The supplier later received a VAT refund from the local German tax authority but failed to reimburse H GmbH before going into liquidation.
H GmbH tried to claim the VAT directly from the tax authority, arguing that the Reemtsma principle applied.
However, the CJEU denied the claim. The reasoning? The tax authority had already reimbursed the VAT once, to the supplier. To reimburse the recipient again would mean paying twice for the same claim, which goes against EU principle of VAT neutrality and would create an undue burden on public finances.
Key takeaway:
If the supplier has already received a refund, the tax authority is not obliged to refund the recipient again, even if the supplier goes into liquidation.
If your company operates in the EU, these rulings carry serious implications. Incorrect VAT charges happen more often than most would like to admit, especially across borders. When suppliers become unreachable, go into liquidation, or reject correction requests due to legal time limits, the traditional reclaim channels dry up fast.
Thanks to the Reemtsma principle, businesses may have a secondary path to pursue the refund of incorrectly charged VAT – one that’s recognised and enforced by the highest EU court.
But not every case qualifies. Here’s what you need to demonstrate:
If these criteria are met, you may be eligible to claim the VAT directly from the relevant tax authority, even in cross border transactions
The Reemtsma principle doesn’t replace your standard VAT recovery process, it complements it. It’s a legal safety net when your usual VAT reclaim route hits a dead end. But navigating these claims can be complex, especially when multiple jurisdictions are involved and local deadlines differ.
Partnering with a specialist VAT reclaim provider can give your business the edge in identifying these less obvious recovery opportunities. From understanding which expenses qualify to compiling the right documentation and making a compelling case to tax authorities, expert support can mean the difference between a rejected claim and recovered cash.
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