Flashback on ECJ cases C-126/14 (‘Sveda’ UAB) – Deduction of input VAT on the acquisition or production of capital goods

On Oct 22, 2015, the ECJ issued his decision in the case C-126/14 (‘Sveda’ UAB)

Article in the EU VAT Directive

Article 168 of Council Directive 2006/112/EC

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Facts

The applicant is active in the field of the organization of conferences and trade fairs (accommodation, meals, drinks) and in technical activities and related consultancy.
The case concerns VAT payment in the period before the company starts up (the month of June 2012); during that period it carries out preparatory activities, invests in goods related to its future (taxable) activity.
In March 2012, the applicant entered into an agreement under the LIT Rural Development Program 2007/2013 committing itself to carrying out a recreation project. It takes care of the 10% remaining costs (after subsidies from the EU and the LIT budget). The accompanying documentation explains how the subsidy (in two parts) will be paid out. The applicant records the costs, including VAT, as ‘capital goods’, and claims the VAT as deductible in June 2012 and submits an application for reimbursement. She is subject to tax audits and in August a report is drawn up stating that the applicant has not proved that the goods in question have been or will be used for taxable transactions. The deduction was therefore wrongly made and the applicant must repay.

Source Minbuza.nl

Questions

May Article 168 of Council Directive 2006/112/EC ¹ of 28 November 2006 on the common system of value added tax be interpreted as granting a taxable person the right to deduct the input VAT paid in producing or acquiring capital goods intended for business purposes, such as those in the present case, which (i) are directly intended for use by members of the public free of charge, but (ii) may be recognised as a means of attracting visitors to a location where the taxable person, in carrying out his economic activities, plans to supply goods and/or services?

AG Opinion

Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that a taxable person has the right to deduct input VAT paid in producing or acquiring capital goods, which (i) are directly intended for use by members of the public free of charge, but which (ii) are used as a means of attracting visitors to a place where the taxable person, in carrying out his economic activities, plans to supply goods and/or services.

Decision

Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as granting, in circumstances such as those in the main proceedings, a taxable person the right to deduct the input value added tax paid for the acquisition or production of capital goods, for the purposes of a planned economic activity related to rural and recreational tourism, which are (i) directly intended for use by the public free of charge, and may (ii) enable taxed transactions to be carried out, provided that a direct and immediate link is established between the expenses associated with the input transactions and an output transaction or transactions giving rise to the right to deduct or with the taxable person’s economic activity as a whole, which is a matter for the referring court to determine on the basis of objective evidence.

Personal comments/VATupdate

The ECJ held that the cost of the path would form part of the price of the Taxpayer’s overall goods and services therefore there was a direct and immediate
link between those and the cost incurred on the path. This analysis was not affected by the free of charge use of the path. Only exempt use or use for purposes
outside the scope of VAT would prevent VAT deduction.

Source