General Court ruling allows for earlier input tax deduction

02/27/2026
Reading time 6 Minutes

Law regarding Fiscal and Economic Offenses Tax

The General Court sides with taxpayers: Input tax credits may be claimed as early as the period in which the services were rendered, provided the invoice is available before the tax return is filed - despite the administration’s differing view.

Input tax deduction requires that the business owner possess an invoice issued in accordance with statutory provisions. In the VAT Application Circular, the tax authorities further specify that input tax deduction is permitted only when the taxpayer has received both the service and the invoice.

If there is a time lag between the receipt of the service and the receipt of the invoice, the input tax deduction is therefore only permissible for the tax period in which both conditions are first met. The receipt of the invoice therefore generally determines the relevant date. Whether the advance VAT return for the service period had already been filed was previously irrelevant.

The Court of Justice of the European Union clearly distinguishes between substantive and formal requirements regarding input tax deduction. Thus, the judgment of February 11, 2026 (T-689/24) may pave the way for an earlier input tax deduction. Although the judgment was based on a Polish request for a preliminary ruling, it directly raises questions regarding the assertion of input tax deduction in Germany.

1. Background to the Judgment

The plaintiff and the Polish tax authorities have been in dispute over a national provision under which the right to deduct input tax arises, at the earliest, in the tax period in which the taxpayer receives the invoice.

The referring court questioned whether this deferral was compatible with the VAT Directive 2006/112/EC (“VAT Directive”) and the EU principles of tax neutrality, effectiveness, and proportionality. The court therefore sought the General Court’s opinion on whether EU law and principles preclude a national provision under which a taxpayer may not exercise the right to deduct input tax in the tax return for the period in which the substantive requirements are met if the taxpayer has not yet received the invoice during that period, even though the invoice is available to the taxpayer before the tax return is filed.

2. Key Findings and Decision of the General Court

The Court emphasizes the distinction between substantive and formal requirements. The right to deduct input tax arises solely from the substantive requirements (qualification as a taxpayer, use for taxable transactions, etc.). The right to deduct input tax arises upon the performance of the supply of goods or services.

Possession of an invoice, on the other hand, is merely a formal requirement for exercising the right. This requires that the taxpayer possess a valid invoice when filing the tax return.

The Polish provision results in a postponement of the timing of the right to deduct to a later tax period, even though all substantive requirements are already met in the earlier period and the taxpayer possesses a valid invoice when filing the tax return. The court views this as the introduction of an additional substantive requirement - namely, possession of the invoice during the service period itself - which has no basis in the VAT system and violates the fundamental principles of VAT neutrality and proportionality. The provision in question results in the taxpayer temporarily bearing the economic burden of the VAT, even though the tax has already been paid at the upstream stage and the tax authorities possess all audit documents upon filing of the return.

The court consequently ruled that the Polish regulation is incompatible with EU law.

3. Practical Consequences

In other words: If the taxpayer receives the invoice only after the end of the tax period in which the service was provided, but before filing the return for that service period, it can be inferred from the ruling that the input tax credit can already be claimed for the period in which the service was performed. This therefore strengthens the position of taxpayers, as it allows them to avoid the risk of liquidity disadvantages resulting from a deferred input tax deduction.

The differences between the previous situation and the situation as it stands following the General Court’s judgment can be illustrated using an example involving a permanent extension and a service period in January:

Icon image — Top: Invoicing to date | Bottom: Invoicing until submission of VA 01 (new)

The example clearly illustrates how the ruling could pave the way for invoices received by the taxpayer in February or even as late as March - but before the return is filed—to be claimed for the month of January, when the service was performed.

This is clearly at odds with the administrative directive described at the outset. If you wish to make practical use of the ruling, we therefore recommend that you generally select code 500 in section 2 (“This tax return deliberately takes a legal position that deviates from the administrative interpretation”) of the advance VAT return. A supplementary explanatory letter (“Supplementary information regarding the tax return”) is essential in this case. However, code number 500 - which triggers the preliminary return to be flagged for review and thus requires manual processing of the return - should always be preceded by an individual VAT review.

It should also be noted that, unlike in the above example - which was deliberately simplified - it will often not be possible to consider a single transaction or input tax deduction in isolation. This situation may present opportunities for taxpayers, but risks also lurk as long as the tax authorities have not implemented the judgment through a corresponding written notice. In this regard, it should be noted that the General Court’s judgment does not automatically imply implementation in Germany. The Polish regulation links not only the exercise of the right to input tax deduction to the receipt of the invoice, but also the very creation of this right. The difference from the German regulation, under which the invoice serves as a formal prerequisite for exercising the right to deduct input tax, could be considered significant.

It is therefore advisable not only to scrutinize the declaration and invoice receipt process more closely before deciding on the application of the ruling and its precise implementation, but also to monitor further developments. In any case, no immediate need for action can be derived from the ruling, as the regulation in the VAT Application Decree remains in effect. In any event, however, one should keep the ruling in mind in order to refer to it, if necessary, in the context of defense advice or to utilize it in an ongoing tax audit.

We are therefore happy to answer any questions you may have and discuss any further considerations.