VAT Wrongly Charged by the Supplier and Right of the Customer to Deduct, from an Italian and EU Perspective: Where Are We?

A very common issue in the economic relationships between suppliers and customers is the application of excessive VAT in the invoices issued by the former to the latter. Since 2017, Italian VAT legislation has provided that the customer has the right to deduct the tax applied “in excess of the effective amount” in such cases, provided that such VAT has been paid by the supplier to the Italian tax authorities, outside a context of tax fraud. The customer will, however, be subject to a fixed, non-proportional, penalty. In this article, the authors seek to illustrate how the application of the principles of “neutrality”, “effectiveness” and “proportionality” established by the case law of the ECJ could lead to a possible application of the said provision, not only in cases where a higher VAT rate was applied in a taxable transaction, but more generally where undue VAT has been charged to the customer (and so also in transactions that are exempt – with or without right to deduction – or outside the scope of VAT).