Failure to include the label "reverse charge applicable" on an invoice issued by an intermediary in a triangular transaction

Since the adoption of the Value Added Tax Act, we have become accustomed to a situation where failure to comply with the obligations related to the issuance of invoices is not considered an especially serious breach of the law. But it seems the time is coming when the judgments of the Court of Justice of the European Union (CJEU) may lead us out of this disdainful approach to these obligations.  

An example is judgment C 247/21 of 8 December 2022 in the case of the Luxury Trust Automobil company, where the CJEU made it clear that the elements of an invoice defined in the Directive are not just a formality but a requirement, where failure to comply may have significant consequences for the taxpayer. 

In the cited judgment, the CJEU dealt with a triangular transaction and considered whether the intermediary could claim exemption from tax if they did not include the label "reverse charge applicable" on the invoice. 

In its judgment, the CJEU held that where an intermediary in a triangular transaction issues an invoice to the final purchaser that does not include the label "reverse charge applicable", they are deemed to be liable to pay tax in the state which has assigned them the VAT number which they provided to their supplier for the purpose of acquiring the goods. 

In other words, the CJEU said that under the scheme applicable to triangular transactions, the intermediary cannot replace the "reverse charge applicable" label with another label, since Article 226(11a) of the VAT Directive expressly requires its inclusion. The purpose of the labels which the invoice must contain is to inform the recipient of the goods of the legal classification of the transaction carried out by the issuer of the invoice. That objective must be respected, especially if the issuer believes it is not the issuer who is liable to pay VAT but the recipient of the supply. 

In practice, this means that the intermediary has purchased goods from another Member State and at the same time had them transported to country other than the one they are registered in. For example, this can occur where a Czech taxpayer purchases goods in Austria (from a taxpayer there) and has them transported directly to Slovakia to their customer who is registered for VAT in Slovakia. If the Czech taxpayer does not meet the conditions for a triangular transaction, they are obliged to declare the tax in the Czech Republic. It is currently not entitled to claim a tax deduction.  

In conclusion, I would like to draw your attention to the wording of the Czech VAT Act. Section 17 of this Act states that the intermediary is obliged to issue an invoice to the buyer with a statement that it is a triangular transaction. Apparently, for the Czech VAT Act, any statement of the existence of a triangular transaction is sufficient. If a domestic taxpayer, in their capacity as an intermediary, puts a notice of a triangular transaction on the invoice instead of the "reverse charge applicable" label, I believe that they cannot be punished by the loss of tax exemption, as stated in the cited CJEU judgment.  

To avoid disputes with the tax administration, however, clients may be advised to check the labels on the issued invoices in the case of triangular transactions. And if they do not have a "reverse charge applicable" label, it should be added to the invoices without delay.