Correction of an invoice for input tax deduction

To claim a VAT credit, a business must submit a valid invoice. If it is later discovered that the invoice does not contain all the required elements, the issuer must correct it. Only then can the company receive the input tax credit and avoid having to make repayments to the tax office. However, this correction is not always straightforward. The question is: to what point in time does the correction apply, and can the company claim the input tax credit retroactively? Your tax advisor in Düsseldorf and Oberhausen explains the best way to handle an invoice correction.

During tax audits, it can sometimes happen that invoices from the audited taxpayer are found to be incorrect. While incorrect invoices are annoying, they can usually be corrected. This is done retroactively, so no final interest charges apply. This is because the European Court of Justice (ECJ) and the Federal Fiscal Court (BFH) have ruled in favor of businesses, stating that invoices can be corrected retroactively for tax purposes. This allows the business to claim the invoice correction for tax purposes within the original tax period. The input tax deduction is thus preserved.

The correction of the invoice must be carried out by the issuer. Cooperation between the two companies is therefore necessary for the correction. If errors are not corrected, the recipient of the service risks losing the input tax deduction, and the service provider cannot pay their taxes.

Eligibility of Invoices for Correction

Retroactive correction is only possible if the erroneous invoice is fundamentally correctable. Such an invoice must include details regarding the issuer, the recipient, the description of services, the amount due, and the separately stated sales tax. A correction is made, for example, if the VAT ID, tax number, or invoice number must be added later, or if the details regarding the nature of the services provided are insufficient.

The invoice cannot be corrected if the information provided is highly vague, incomplete, or obviously inaccurate. In this case, it is equivalent to missing information. The invoice correction is also not retroactive if the description of the services billed is too general. A description such as “product sales,” for example, is too vague and therefore cannot be traced. In such cases, the original input tax deduction cannot be allowed initially. It can then only be claimed in the current tax period.

Correcting Incorrect Invoices

Either a correction document serves as the correction, or the original invoice is canceled. In that case, a new invoice is issued. In both cases, the invoice correction can be claimed retroactively for tax purposes. If that is the case, the input tax deduction is retained. The invoice is corrected so that the input tax deduction is retained. This refers to the original tax period in which the service was received with the incorrect invoice.

Limits of Retroactivity

Retroactivity does not apply to missing or incorrect information that is corrected on the invoice. This is because this type of error does not constitute a retroactive event under the provisions of the Tax Code. In 2020, the legislature once again clarified in the Annual Tax Act that retroactive effect does not apply in this case. This further supported the interpretation of the tax authorities.

From a procedural standpoint, the retroactive effect of an invoice correction is thus subject to a strict limitation. If a retroactively corrected invoice entitles the business owner to input tax deduction for the first time, this deduction cannot be claimed.

Your Tax Law Experts in Düsseldorf and Oberhausen

Do you have a question or concern regarding tax law? The team at Trimborn . Partner can assist you as quickly as possible with our many years of experience and professional expertise. Are you looking for a tax advisor? Then please contact us. At our offices in Düsseldorf and Oberhausen, we are happy to assist you with all your tax-related matters.