On February 16, 2012, the ECJ issued its decision in the case C-118/11 (Eon Aset Menidjmunt).
Context: VAT — Directive 2006/112/EC — Articles 168 and 176 — Right of deduction — Condition relating to use of goods and services for the purposes of taxed transactions — Origin of the right to deduct — Motor vehicle leasing contract — Financial leasing contract — Vehicle used by employer to transport free of charge an employee between his home and his workplace
Article in the EU VAT Directive
Articles 168 and 176 of the EU VAT Directive 2006/112/EC
Article 168 (Right to deduct VAT)
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.
Article 176
The Council, acting unanimously on a proposal from the Commission, shall determine the expenditure in respect of which VAT shall not be deductible. VAT shall in no circumstances be deductible in respect of expenditure which is not strictly business expenditure, such as that on luxuries, amusements or entertainment.
Pending the entry into force of the provisions referred to in the first paragraph, Member States may retain all the exclusions provided for under their national laws at 1 January 1979 or, in the case of the Member States which acceded to the Community after that date, on the date of their accession.
Facts
- Eon Aset is a company established in Bulgaria, which pursues its economic activities in a number of sectors.
- In the course of a tax inspection relating to the period from 1 July 2008 to 31 October 2009, the competent authorities found that Eon Aset had entered into, first, a contract with a company for the lease of a motor vehicle for a period between 1 October 2008 and 1 March 2009 and, second, a financial leasing contract with another company, for a period of four years, relating to another motor vehicle.
- Eon Aset deducted the VAT included in all invoices issued to it during the tax period in which it received them.
- The authorities took the view that the vehicles had to be regarded as not having been used for the purposes of Eon Aset’s economic activity, in the absence of evidence to that effect.
- Eon Aset was refused the right to deduct the corresponding VAT, pursuant to Article 70(1)(2) of the ZDDS.
- Eon Aset disputed that adjusted tax notice by seeking administrative review before the Direktor na Direktsia Obzhalvane i upravlenie na izpalnenieto — Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite.
- When following that review the tax notice was partly upheld, Eon Aset brought proceedings before the Administrativen sad Varna (Varna Administrative Court).
- In support of its action, Eon Aset claims that the motor vehicles at issue in the main proceedings were used to provide its managing director with transport between his home and his workplace. Relying on Article 70(3)(2) of the ZDDS, Eon Aset considers that the exclusion of the right to deduct prescribed in Article 70(1)(2) of the ZDDS does not apply to the provision free of charge by the employer to staff of transport between home and workplace.
- Eon Aset also challenges the compatibility of Article 70(1)(2) of the ZDDS with European Union law.
Questions
- How must the requirement ‘are used’ established in Article 168 of Directive 2006/112 1 be interpreted and, in the framework of assessing the initial establishment of the right of deduction, when must that requirement be satisfied: in the tax period itself in which the goods were purchased or the services received or does it suffice that the requirement is satisfied in a subsequent tax period?
- In the light of Articles 168 and 176 of Directive 2006/112, is a legal rule permissible, such as that established in the domestic provision of Article 70(1)(2) of the Law on VAT, which allows goods and services ‘intended for gratuitous transactions or for activities other than the economic activity of the taxable person’ to be excluded from the outset from the system of input tax deduction?
- If Question 2 is answered in the affirmative: Must Article 176 of Directive 2006/112 be interpreted as meaning that a Member State which sought to take advantage of the option to exclude certain goods and services from the right of deduction and which defined the category of expenditure as follows: the goods and services intended for gratuitous transactions or for activities other than the economic activity of the taxable person except in the cases mentioned in Article 70(3) of the Law on VAT, satisfied the requirement to adequately define the category of goods and services, that is, to define these by reference to their nature?
- Depending on the answer given to Question 3: In the light of Articles 168 and 173 of Directive 2006/112, how must the purpose (the use or future use) of the goods or services acquired by the taxable person be assessed: as a prerequisite for the initial establishment of the right of deduction or as grounds for the adjustment of the amount of input tax deducted?
- If the purpose (use) must be assessed as grounds for an adjustment to the amount of input tax deducted, how must Article 173 of Directive 2006/112 be interpreted: does it provide for adjustments to be made also in cases in which goods and services are used initially for an activity which is not taxed or following their acquisition not used at all but are at the disposal of the undertaking and in a (tax) period following their acquisition are included in the taxable activity of the taxable person?
- If Article 173 of Directive 2006/112 must be interpreted as meaning that the adjustment envisaged also applies to cases in which, following their acquisition, goods and services are used initially for an activity which is not taxed or not used at all but subsequently are included in the taxable activity of the taxable person, in the light of the restriction established by Article 70(1)(2) of the Law on VAT and the fact that, pursuant to Article 79(1) and (2) of the Law on VAT, adjustments may be made only in cases in which goods whose initial use satisfies the requirement for deduction of input tax are subsequently included in a use which does not satisfy those requirements, must it be presumed that the Member State has satisfied its obligation, in relation to all taxable persons, to structure the right of deduction as soundly and fairly as possible?
- Depending on the answers given to the previous questions: Must it be presumed, having regard to the rules established in the Bulgarian Law on VAT governing restrictions on the right of deduction and adjustments to the amount of input tax deducted, in circumstances such as those of the main proceedings, and in the light of Article 168 of Directive 2006/112, that, in relation to goods supplied and services carried out by another taxable person, a taxable person registered pursuant to the Bulgarian Law on VAT may deduct the input tax in the (tax) period in which these were supplied to him or carried out on his behalf and in which the VAT became chargeable?
AG Opinion
None
Decision
1. Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that:
– a leased motor vehicle is to be regarded as used for the purposes of the taxable person’s taxed transactions if there is a direct and immediate link between the use of that vehicle and the taxable person’s economic activity and the time when the right to deduct arises and when it is necessary to take into account the existence of such a link is on the expiry of the period to which each payment relates;
– a motor vehicle leased under a financial leasing contract and placed in the category of capital goods is to be regarded as used for the purposes of taxed transactions if the taxable person acting as such acquires that vehicle and allocates it entirely to the assets of his undertaking, input value added tax payable being fully and immediately deductible, and any use of that vehicle for the taxable person’s private purposes or for those of his staff or for purposes other than those of his undertaking being treated as a supply of services carried out for consideration.
2. Articles 168 and 176 of Directive 2006/112 must be interpreted as not precluding national legislation which provides for the exclusion from the right to deduct of goods and services intended to be supplied free of charge or for activities outside the scope of the taxable person’s economic activity, provided that goods categorised as capital goods are not allocated to the assets of the undertaking.
Summary
A hired motor vehicle is considered to have been used for the taxable transactions of the taxable person if there is a direct and immediate link between the use of the vehicle and the economic activity of the taxable person, the right to deduct arises at the expiry of the period in which each of the payments, and the existence of such a link should be taken into account at the expiry of that period.
A motor vehicle hired under a lease that qualifies as capital good is considered to have been used for taxable transactions if it is obtained by a taxpayer acting as such who destines it in its entirety for its business assets, the input tax being fully and immediately deductible. and any use of that property for the private purposes of the taxable person or his staff or for purposes other than business purposes is assimilated to a service provided for consideration.
A national legislation which excludes the right to deduct is permitted for goods and services intended for free supplies or for activities other than the economic activity of the taxable person, provided that the goods classified as capital goods are not intended for business assets.
Source
Newsletters
- BTW jurisprudentie
- Lexology – The curious ECJ case of Eon Asset Management and its impact on finance leasing in the United Kingdom
- Deloitte
- PwC
