On May 4, 2023, the ECJ issued its judgment in the case C-127/22 (Balgarska telekomunikatsionna kompania).
Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Article 185 — Adjustment of deductions from input VAT paid — Goods discarded — Subsequent sale as waste — Destruction or disposal duly proven or justified
Articles on the EU VAT Directive
Article 185 (Adjustment of deductions)
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.
However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.
Facts
The Bulgarian company BTK EAD provides telecommunications services. The company has made adjustments to the deduction and has discarded or retired capital goods. BTK EAD submitted a claim for settlement and refund, which was ultimately rejected by the tax authorities. The company’s appeal against the determination of the VAT was dismissed by the court of first instance. Indeed, it turned out that the company had used the discarded goods for its business activity while the goods were recorded in the accounts as inventories, to which no depreciation is applied. The contested assessment was therefore lawful, according to the administrative court. The company subsequently initiated an appeal in cassation with the highest administrative court.
Consideration:
The referring court notes that the question of whether the disposal of goods for the purpose of determining the amount to be deducted has not yet been addressed in the case-law. The referring court wonders, with regard to Article 185 of the Directive, whether the deduction should be reviewed where goods are discarded, even if they are subsequently sold as waste. With regard to the meaning of the concept of ‘waste’, the question arises whether Article 80(2) of the Bulgarian Value Added Tax Act constitutes a measure within the meaning of Article 189(c) of the Directive.
Source Minbuza.nl
Questions
(1) Is Article 185(1) of Directive 2006/112/EC to be interpreted as meaning that the scrapping of goods in the sense of the derecognition of economic goods or stocks from the taxable person’s balance sheet, on the ground that they are expected to be will no longer bring economic benefits because, for example, they are worn out, defective or unsuitable, or cannot be used for their intended purpose, amounts to a change occurring after the VAT return in accordance with the (Bulgarian Law on Value Added Tax; after this:“ZDDS”) occurred in the elements taken into account for determining the amount of the deduction in respect of the value added tax already paid at the time of purchase of the goods, which implies the obligation to make the deduction to be reviewed when the discarded goods are subsequently sold as goods listed in Annex 2, which constitutes a taxable supply?what constitutes a taxable supply?what constitutes a taxable supply?
(2) Is Article 185(1) of Directive 2006/112/EC to be interpreted as meaning that the scrapping of goods in the sense of the derecognition of economic goods or stocks from the taxable person’s balance sheet, on the ground that they are expected to be will no longer provide economic benefits because, for example, they are worn out, defective or unsuitable, or cannot be used for their intended purpose, amounts to a change that occurred after the VAT return in accordance with the ZDDS in the elements taken into account for determining the amount of the deduction in respect of the value added tax already paid when the goods were purchased, which entails the obligation to review the deduction when the discarded goods have subsequently been destroyed or removed and this has been duly proven and demonstrated?
(3) If the first or second question, or both questions, are answered in the affirmative, must Article 185(2) of Directive 2006/112/EC be interpreted as meaning that the scrapping of goods under the above circumstances constitutes a case of duly constitutes proven and proven destruction or loss of a good, which does not give rise to an obligation to adjust the deduction in respect of the VAT paid on the acquisition of the goods?
(4) Is Article 185(2) of Directive 2006/112/EC to be interpreted as meaning that, in the case of duly proven and proven destruction or loss of property, the adjustment of the deduction may be waived only if the destruction or loss was caused by events beyond the taxpayer’s control and could not have been foreseen or prevented by him?
(5) If the answer to the first or second question, or both questions, is in the negative, does Article 185(1) of Directive 2006/112/EC preclude national legislation such as that of Article 79(3) respectively? ZDDS, in the version in force until December 31, 2016, and Article 79(1) ZDDS, in the version in force since January 1, 2017, which provides for the obligation to review for the scrapping of goods the deduction, even if the goods have subsequently been sold – which is a taxable supply of goods within the meaning of Annex 2 – or destroyed or removed and has this been duly proven and demonstrated?
AG Opinion
None
Decision
1. Article 185(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
must be interpreted as meaning that writing off goods which the taxable person considered to have become unusable in the course of his or her usual economic activities, followed by the sale of those goods as waste, which was subject to value added tax (VAT), does not constitute a ‘change … in the factors used to determine the amount to be deducted’, within the meaning of that provision.
2. Article 185 of Directive 2006/112
must be interpreted as meaning that writing off goods, which the taxable person considered to have become unusable in the course of his or her usual economic activities, followed by the voluntary destruction of those goods, constitutes a ‘change … in the factors used to determine the amount to be deducted’, within the meaning of paragraph 1 of that article. However, such a situation constitutes ‘destruction’, within the meaning of the first subparagraph of paragraph 2 of that article, irrespective of its voluntary nature, with the result that that change does not give rise to an adjustment obligation provided that that destruction is duly proved or confirmed and that the goods had objectively lost all usefulness in the taxable person’s economic activities. The duly proven disposal of goods must be treated in the same way as their destruction in so far as it actually entails the irreversible disappearance of those goods.
3. Article 185 of Directive 2006/112
must be interpreted as meaning that it precludes provisions of national law which provide for the adjustment of input VAT deducted upon acquisition of goods where they have been written off, the taxable person having considered that they had become unusable in the course of his or her usual economic activities and where, subsequently, those goods were either sold subject to VAT or destroyed or disposed of in a way which effectively means that they have disappeared irreversibly, provided that such destruction is duly proved or confirmed and that the goods had objectively lost all usefulness in the taxable person’s economic activities.
Summary
Article 185(1) of Directive 2006/112/EC states that the scrapping and subsequent sale of a good as waste, which was subject to VAT, does not constitute a modification of the elements taken into consideration for the determination of the amount of deductions. However, the voluntary destruction of goods deemed unusable by the taxable person does constitute a modification of these elements, but is considered destruction under paragraph 2 of the same article and does not require regularization if duly proven or justified. National laws that require adjustment of input VAT deducted on scrapped goods are opposed, provided the destruction is proven and the property has objectively lost all usefulness in the context of the taxable person’s economic activities.
Source
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