In February, the Greek Supreme Administrative Court delivered a landmark decision (Decision 355/20.02.2019) in a test case, concluding that the way the Greek VAT Code dealt with bad debts on insolvency was contrary to EU law.

The Greek VAT Code allowed businesses to recover VAT on bad debts only in cases of special liquidation of the customer.  In other cases of proven insolvency - such as when the customer had entered into rehabilitation procedures - the VAT was not recoverable.

The Supreme Administrative Court ruled that the relevant provision of the Greek VAT Code was not consistent with either:

·      the EU VAT Directive, as interpreted by the Court of Justice of the European Union (CJEU) in its previous decision C-246/16 Enzo di Maura; or

·      general principles of VAT neutrality and proportionality. 

Instead, the taxable person should be able to recover VAT in any situation where it can be established that, in all likelihood, the debt will not be repaid based on procedures that are prescribed in law. If the debt was subsequently paid, the VAT could then be reassessed.

A number of large companies had initiated court procedures before the administrative courts challenging the consistency of the Greek legislation with EU VAT law.  The case heard was a test case concerning a litigant who had had 50% of his debt written off due to its customer entering into a corporate “rehabilitation” arrangement.  The procedure adopted in the case was notable, as the interested parties, the tax administration and the courts all worked together to achieve a clear and timely decision on what is an important issue for many businesses.  

Businesses should now seek to recover VAT in respect of bad debts that should be considered as definitely non-payable due to rehabilitation procedures or other proven insolvency of the customer.