On January 15, 1998, the ECJ issued its decision in the case C-37/95 (Ghent Coal Terminal).
Context: Value added tax – Sixth VAT Directive – Article 17 – Right to deduct – Adjustment of deductions
Article in the EU VAT Directive
Article 17(2) and 20 of the Sixth Council Directive 77/388/EEC
Article 17 (Deduction)
1. The right to deduct shall arise at the time when the deductible tax becomeschargeable.
2. In so far as the goods and services are used for the purposes of his taxabletransactions, the taxable person shall be entitled to deduct from the tax which heis liable to pay:
(a) value added tax due or paid in respect of goods or services supplied or tobe supplied to him by another taxable person;
(b) value added tax due or paid in respect of imported goods;
4. The adjustment of deductions is governed by Article 20, which provides as follows:
1. The initial deduction shall be adjusted according to the procedures laiddown by the Member States, in particular:
(a) where that deduction was higher or lower than that to which the taxableperson was entitled;
(b) where after the return is made some change occurs in the factors used todetermine the amount to be deducted, in particular where purchases arecancelled or price reductions are obtained; however, adjustment shall notbe made in cases of transactions remaining totally or partially unpaid andof destruction, loss or theft of property duly proved or confirmed …
2. In the case of capital goods, adjustment shall be spread over five yearsincluding that in which the goods were acquired or manufactured. The annual adjustment shall be made only in respect of one-fifth of the tax imposed on thegoods. The adjustment shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in whichthe goods were acquired or manufactured.
3. In the case of supply during the period of adjustment capital goods shall beregarded as if they had still been applied for business use by the taxable personuntil expiry of the period of adjustment. Such business activities are presumed tobe fully taxed in cases where the delivery of the said goods is taxed; they arepresumed to be fully exempt where the delivery is exempt. The adjustment shall bemade only once for the whole period of adjustment still to be covered.
Facts
- In 1980, Ghent Coal purchased land in the harbour area of Ghent. It subsequentlycarried out investment work and immediately deducted the VAT paid on the goodsand services relating to that work for the period between 1 January 1981 and31 December 1983.
- On 1 March 1983, on the initiative of the city of Ghent, Ghent Coal exchanged theland in question for other land situated elsewhere in the Ghent harbour area. Consequently, it never used the land in respect of which it had carried out theinvestment work giving rise to the deduction.
- It is not disputed that the investment was in the normal course of events to havebeen used in taxable transactions, or that the exchange had been neither foreseennor planned in advance by Ghent Coal, which was unable to avoid it from aneconomic point of view and for which it even constituted a case of economic forcemajeure.
- Following investigations carried out in 1984, the tax authorities concluded thatGhent Coal had not used the land in question for the purpose of carrying outtaxable transactions and accordingly sought repayment of the VAT deducted inconnection with the investment work carried out on the land in question, along withpayment of a fine and default interest.
- Ghent Coal initially accepted the view taken by the tax authorities. On 27 March1986, however, it brought proceedings against the Belgian State before theRechtbank van eerste Aanleg (Court of First Instance), Ghent, which, by judgmentof 4 April 1990, dismissed its application. However, by judgment of 26 October1992, the Hof van Beroep (Court of Appeal), Ghent, upheld the appeal lodged byGhent Coal. The Belgian State thereupon sought to have that judgment set aside.
- The Belgian State takes the view that, when goods or services supplied have givenrise to a deduction but have never been used for the purpose of carrying outtaxable transactions, the right to deduct must be retroactively withdrawn and thededucted VAT repaid in full.
- Ghent Coal argues that the right to deduct VAT due or paid in respect of goodsor services originally intended to be used for the purpose of carrying out taxabletransactions is an absolute right and cannot therefore be called into question evenif the person concerned has never actually made use of those goods or services.
Questions
Does Article 17 of the Sixth Council Directive of 17 May 1977 on theharmonisation of the laws of the Member States relating to turnover taxes meanthat the right to deduct remains in existence for value added tax on investmentswhich were originally intended for use in the undertaking but which, for reasonsbeyond its control, were never in fact put into use by the undertaking?
AG Opinion
Article 17(2) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, allows an undertaking to deduct the VAT paid in connection with the acquisition of goods and the receipt of services corresponding to investment works originally intended to be used in its business activity but which, for reasons beyond its control, were never in fact put to use by the undertaking. The adjustment of those deductions must be effected as provided for in Article 20 of that Directive.
Decision
Article 17 of the Sixth Council Directive 77/388/EEC of 17 May 1977 on theharmonisation of the laws of the Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment must beconstrued as allowing a taxable person acting as such to deduct the VAT payableby him on goods or services supplied to him for the purpose of investment workintended to be used in connection with taxable transactions. The right to deductremains acquired where, by reason of circumstances beyond his control, thetaxable person has never made use of those goods or services for the purpose ofcarrying out taxable transactions. A supply of investment goods during theadjustment period, where such occurs, may give rise to an adjustment of thededuction under the conditions set out in Article 20(3) of Directive 77/388.
Summary
A taxable person may deduct the VAT due on goods or services supplied to him or provided for investment works intended to be used in the context of taxable transactions.
The right to deduct continues to be acquired if the taxable person, for reasons beyond his control, has never used those goods and services to carry out taxable transactions.
Where appropriate, the supply of capital goods during the adjustment period may give rise to an adjustment of the deduction.
Source
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