ECJ: The Right to Deduct VAT Cannot Be Postponed on Purely Formal Grounds

On 11 February 2026, the General Court of the European Union (ECJ) delivered a highly relevant judgment in the field of VAT in Case T‑689/24 – I. S.A. vs Dyrektor Krajowej Informacji Skarbowej, providing important clarification on a practical and frequently disputed issue: the timing of the right to deduct VAT where the invoice is received after the tax period in which VAT became chargeable.

The decision reconfirms the Court’s consistent case law on the primacy of economic substance over excessive formalism and is particularly relevant for jurisdictions with increasingly strict reporting requirements, including Romania (e‑Invoice, SAF‑T, etc.).

Background of the case

The dispute arose from a relatively common business situation:

• a taxable person acquired goods (natural gas and electricity);
• VAT became chargeable in a given tax period, when the goods were supplied;
• the invoice was issued and received in the following tax period, but before the VAT return for the original period was filed.

The Polish tax authorities denied the right to deduct VAT in the period in which VAT became chargeable, arguing that the invoice had not been received during that same period. According to the authorities, the deduction could only be exercised in a later tax period.

The taxpayer challenged this interpretation, and the case ultimately reached the ECJ via the Polish Supreme Administrative Court.

The preliminary question

The referring court asked whether Articles 167, 168(a) and 178(a) of Directive 2006/112/EC, read in conjunction with the principles of:

• fiscal neutrality,
• proportionality, and
• effectiveness,

preclude national legislation that postpones the exercise of the right to deduct VAT solely because the invoice was not received during the relevant tax period, even though it was available before the VAT return was submitted.

The Court’s ruling

The ECJ ruled unequivocally that:

The right to deduct VAT arises at the moment when VAT becomes chargeable, i.e. at the time of the supply of goods or services, and not at the time the invoice is received.

The Court emphasized that:

• possession of an invoice constitutes a formal requirement for exercising the right, not for its existence;
• where the invoice is received before the VAT return for the relevant period is filed, a Member State may not require the taxable person to defer the deduction to a later period;
• such a restriction infringes the principle of VAT neutrality, as it forces the taxable person to temporarily bear a VAT burden that should not exist in a neutral VAT system.

Consequently, the Court held that the Polish legislation at issue was incompatible with EU law.

Key elements of the Court’s reasoning

1. Distinction between substantive and formal conditions

The ECJ reiterated a fundamental distinction in VAT law:

• substantive conditions (the existence of a taxable transaction and the use of goods/services for taxable outputs) determine the birth of the right to deduct;
• formal conditions (such as holding a valid invoice) govern how that right is exercised.

A temporary failure to meet a formal requirement cannot justify the loss or postponement of a substantive right that has already arisen.

2. The principle of VAT neutrality

A core feature of the VAT system is that:

• VAT should not constitute a cost for taxable persons;
• unjustified deferral of the deduction creates an artificial financial burden, contrary to the principle of neutrality enshrined in the VAT Directive.

3. Distinction from earlier case law

The Court clarified that the case is not comparable to earlier judgments such as Terra Baubedarf‑Handel, where the invoice was not available even at the time of filing the VAT return. In Case T‑689/24, the invoice was already in the taxpayer’s possession, and the refusal was based solely on a formal timing argument.

Relevance for Romania and other Member States

Although the case concerns Polish legislation, the principles established by the Court are directly relevant across the EU, including Romania, especially in the context of:

• VAT audits focused on the timing of deductions;
• discrepancies between the chargeability of VAT and the receipt of invoices;
• increasingly formalized electronic reporting systems (e‑Invoice, SAF‑T).

The judgment provides taxpayers with a strong legal basis to challenge overly formalistic interpretations and to argue that VAT should be deducted in the economically correct period, not postponed for purely procedural reasons.

Conclusion

The ECJ judgment in Case T‑689/24 is a landmark decision in VAT law, reaffirming that:

• economic substance prevails over excessive formalism;
• the right to deduct VAT cannot be restricted or deferred on purely procedural grounds;
• VAT neutrality remains a cornerstone of the EU VAT system.

For taxpayers and tax advisors alike, this decision represents a powerful tool both for risk management and for defending VAT positions in disputes with tax authorities.

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Article written by Valentin Alangiu, Accounting & Tax Partner – Nowium Tax&Finance

Valentin ALANGIU

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