Document vs. invoice
Whenever a transaction requires an invoice to be raised according to the Netherlands Turnover Tax Act 1968, the associated tax is rendered due and payable at the moment the creditor duly presents the debtor with said invoice. Business owners are required to issue invoices for products they deliver and/or services they supply to other business owners or legal entities, and need to do so within a fifteen (15) day term of the relevant date of product delivery and/or service supply. As the Act has stopped short of stipulating when invoices for agreed performances are to be issued, this implies that such invoices may also be issued in advance, before the activity in question has actually been performed, without this affecting the statutory consequences of an invoice having been issued. The upshot of this is that the outstanding tax becomes due and payable by the issuing business at the moment the invoice is issued, for set-off – by way of input tax – against such value-added tax as the business has been charged with during the relevant reporting period.
Case in point
A business owner in October 2008 commissioned a new business property to be built. His contractor duly sent him a document showing the contract price and an amount in value-added tax and stating that a fourteen (14) day payment term applied. Although the principal made no payments at all in 2008, he nevertheless docked the value-added tax amount by way of input tax resulting in a value-added tax credit for the final quarter of 2008. The first half of 2009 saw the contract price for the build being invoiced, and settled up, in instalments, with the contractor duly arranging for settlement with the Tax and Customs Administration of the value-added tax charges as per his relevant tax returns, and with the principal – rightly – refraining from seeking further input tax credit.
The Tax and Customs Administration in the wake of an audit of the contractor’s accounting records imposed an additional tax assessment upon the principal, by way of adjustment of the latter’s value-added tax return for the final quarter of 2008, arguing that the document which the contractor had issued to his principal in 2008 had not been a proper invoice. The contractor concurred and referred to the document as a breakdown of the contract price for the build. According to the Arnhem-Leeuwarden Court of Appeal, however, the document had qualified as an invoice, albeit one which had erroneously featured an amount in value-added tax. As the value-added tax had been rendered due and payable for the mere reason of it having been stated, this had disqualified the principal from seeking input tax credit accordingly. The Court went on to dismiss the principal’s reliance upon a particular decree which the Dutch Ministry of Finance had issued in 2007 on the subject of scenarios involving value-added tax having erroneously been charged. Not to be outdone, the principal filed an appeal in cassation with the Supreme Court of the Netherlands, which quashed the Arnhem-Leeuwarden Court of Appeal’s ruling and ordered the Bois-le-Duc Court of Appeal to look into whether or not the document qualified as an invoice as defined in the Netherlands Turnover Tax Act 1968. If the Bois-le-Duc Court of Appeal comes to the conclusion that the document never qualified as an invoice, the next question to be dealt with will be that of whether the Inspector of Taxes should not have raised the additional tax assessment with the contractor rather than the principal.