In the case Credidam, the European General Court delivered a landmark judgment on damages. It held that damages may be subject to VAT even where there is no contractual relationship, or where the payment is owed by law. This calls into question the tax authorities’ previous (generous) distinction between “genuine” and “non-genuine” damages.

From a long standing German practical perspective, it has been undisputed that input VAT may only be claimed after the supply of goods or services has been received and only in the VAT return period during which the corresponding invoice was received. Although, according to the settled case law of the ECJ, the invoice merely constitutes a formal requirement, compliance with this requirement has nevertheless been regarded as indispensable for the exercise of the right to deduct input VAT. In its recent judgment in Dyrektor Krajowej Informacji Skarbowej (case T 689/24), the General Court has now unexpectedly departed from this established approach. The Court held that input VAT may already be deducted in the VAT return period in which the taxable supply is received, provided that the invoice is received before the VAT return for that tax period is submitted. This contradicts the German administrative interpretation. Thus, the ruling gives rise to significant practical and legal implications that merit close examination.