Article in the EU VAT Directive 2006/112/EC
Article 173 (Rigjt to deduct VAT – Proportional VAT Deduction)
1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.
The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.
2. Member States may take the following measures:
(a) authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;
(b) require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;
(c) authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;
(d) authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein;
(e) provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.
ECJ Cases Decided
- C-408/98 (Abbey National plc) – Costs of the transferor for the services related to TOGC form are directly and immediately related to the entire economic activity
- C-437/06 (Securenta) – Taxable person who simultaneously carries out, taxed or exempt, economic activities and non-economic activities – Right to deduct input tax paid
- C-488/07 (Royal Bank of Scotland) – Proportional deduction – No obligation to apply the rounding up rule
- C-511/10 (BLC Baumarkt) – Germany may apply surface ratio for mixed-use VAT deduction
- C-377/11 (International Bingo Technology) – The amount that a bingo organizer is legally required to pay out in prizes is not part of the turnover/this part does not count towards the denominator of the pro-rata violation
- C-388/11 (Le Crédit Lyonnais) – Taxpayer is not allowed to take into account the turnover of foreign branches for VAT refunds
- C-92/13 (Gemeente ‘s-Hertogenbosch) – First occupation by a municipal authority of premises built for it on land belonging to it is a deemed taxable transaction
- C-183/13 (Banco Mais) – Application of a “use-based” partial exemption method to a bank’s leasing transactions (pro-rata VAT deduction)
- C-332/14 (Wolfgang und Wilfried Rey Grundstücksgemeinschaft GbR) – Input tax deduction correction – Mixed Use buildings
- C-186/15 (Kreissparkasse Wiedenbrück) – Not obligation to apply the rounding rule of Art. 175(1) when the deductible part is calculated on the basis of one of the deviating methods
- C-378/15 (Mercedes Benz Italy) – Mixed-use revenue-based pro rata does not violate EU law
- C-28/16 (MVM) – Also VAT deduction limitation for ”active” company that holds participations
- C-153/17 (Volkswagen) – Judgment – Deduction of input VAT on mixed supplies – Hire-purchase agreements
- C-165/17 (Morgan Stanley) – Judgment – VAT deduction by branches rendering services to their head-office
- C-661/18 (CTT – Correios de Portugal) – Judgment – Adjustment of pro rata calculation
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