Invoices must include the description of the operation performed

10.2013

Our customers often ask us about the details that should be included in an invoice, under the description of the goods or services supplied. On many occasions, basic descriptions are used, such as “miscellaneous services” or “sale of machinery during the month of…” However, the disadvantage of not including detailed information on the operation performed is that the customer undertakes the risk of not being able to deduct the input VAT of such an invoice.

By way of example, a ruling by the Spanish National Court (“Audiencia Nacional”) of 5 May 2008 upheld the decision of the tax administration to reject the deductibility of input VAT due to the fact that many invoices contained unclear descriptions. Certainly, input VAT cannot be a cost to a company, but it is necessary to prove that the payments made were directly related to the business activity carried out by said company. As such, it is essential to itemise the reason for such payments in a very detailed way. As stated in the abovementioned ruling, “The tax deduction mechanism cannot be applied to service provisions in general, but to specific operations that must comply with all legal requirements”. It is also worth mentioning that, in this ruling, the Court was suspicious of the descriptions included in the invoices from the beginning, as both companies – seller and buyer – were related undertakings, which is very common in these cases.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++