On April 23, 2009, the ECJ issued its Order in the case C-74/08 (PARAT Automotive Cabrio).
Context: Sixth VAT Directive – Accession of a new Member State – Tax on subsidised purchase of goods – Right to deduct – Exclusions laid down by national legislation at the time that the Sixth Directive came into force – Member States’ option to retain exclusions
Article in the EU VAT Directive
Articles 17(2) and 17(6) of the Sixth VAT Directive (Articles 168 and 176 of the EU VAT Directive 2006/112/EC).
Article 168 (Origin and scope of right of deduction)
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 (Restrictions on the right of deduction)
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
- Pursuant to a subsidy contract of 11 May 2005 concluded with the Magyar Fejlesztési Bank (the Hungarian Development Bank), on behalf of the Gazdasági és Közlekedési Minisztérium (the Ministry of the Economy and Transport), PARAT made an investment for the purpose of enlarging its production capacity for convertible tops for cars in the year 2005. That contract had granted PARAT a non-repayable subsidy of 47% of the total amount of the investment costs.
- For that investment, PARAT entered four invoices issued for the purchase of the machinery totalling HUF 43 882 853, deducting all the VAT indicated on those invoices, that is to say, HUF 10 971 718, in its tax return for the month of September 2005.
- Subsequently, the Nógrád Megyei Igazgatóság Kiutalás Előtti Ellenőrzési Osztálya (Inspection Division of the Directorate for Tax Administration of the county of Nógrád) carried out an audit of the aforementioned tax return which concluded that PARAT, because of the non-repayable subsidy which it had received, had to reduce that amount of VAT deducted with regard to the purchase of machinery in the context of the investment made.
- APEH then calculated the amount of deductible VAT on the basis of the proportion of the finance received (47%), finding that, instead of the amount of HUF 10 971 718 which PARAT had deducted as VAT on the machinery purchased, PARAT was entitled to a deduction of HUF 5 748 000. APEH then determined the amount of non-deductible VAT, which after the calculation of the remaining portion, was HUF 5 223 718, and that amount was charged to PARAT as a tax debt. In addition, that amount was increased by a fine and a penalty for delay.
- In its complaint against that decision, PARAT applied to have the tax debt, the fine and the penalty for delay annulled. In particular, it pointed out that the national legislation applicable at the material time constituted a restriction of the right to deduct VAT contrary to the provisions of the Sixth Directive. PARAT’s complaint was dismissed by APEH.
- PARAT then brought an action for annulment of the decision ordering the recovery of the tax debt, and a fine and a penalty for delay. It stressed, in particular, that Article 17(2) of the Sixth Directive allowed it to deduct the total amount of VAT shown in the invoices corresponding to the machinery acquired.
Questions
AG Opinion
None
Decision
1. Article 17(2) and (6) of 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 must be interpreted to the effect that it precludes national legislation which, in the case of acquisition of goods subsidised by public funds, allows the deduction of related VAT only up to the limit of the non-subsidised part of the costs of that acquisition.
2. Article 17(2) of Sixth Directive 77/388 confers on taxable persons rights on which they may rely before a national court to contest national rules that are incompatible with that provision.
Summary
VAT on subsidized purchase of capital goods – Right of deduction
A national regulation according to which, in the case of a subsidized purchase of goods from public funds, the VAT paid on this may only be deducted insofar as it relates to the non-subsidised part of that purchase.
Article 17(2) of the Sixth Directive confers on taxpayers rights on which they may rely before national courts against national rules which are incompatible with that provision.
Source:
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