ECJ C-475/23 (Voestalpine Giesserei Linz) – Judgment – Right to deduct VAT if goods purchased are provided to a subcontractor for the subcontractor’s taxable transactions

On October 4, 2024. the ECJ issued its judgment in the case C-475/23 (Voestalpine Giesserei Linz).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 168(a) – Right to deduct VAT – Acquisition of goods by a taxable person – Making available of those goods free of charge to a subcontractor for the purpose of carrying out works for the taxable person – Refusal of the deduction of the VAT relating to those goods

Summary

In Case C-475/23, the Court addressed the right to deduct VAT under Article 168(a) of Directive 2006/112/EC. The issue involved Voestalpine Giesserei Linz GmbH, which provided goods free of charge to a subcontractor for processing. The tax authority denied VAT deduction, arguing the goods benefited the subcontractor’s transactions, not the company’s.

The Court ruled that VAT deduction is permissible if goods are essential for the taxable person’s economic activities, even if subcontractors benefit. The deduction depends on a direct and immediate link between the goods acquired and the taxpayer’s output transactions or overall economic activity.

Additionally, the Court addressed the practice of denying VAT deductions due to insufficient accounting, specifically the absence of separate accounts for a fixed establishment. It concluded this is unjustified if tax authorities can verify the substantive conditions for deduction.

The judgment emphasized that penalties for non-compliance with formal requirements should be proportionate. Denying deductions is excessive if substantive criteria are met, ensuring VAT neutrality. This decision reinforces the principle that VAT deductions should not be unduly restricted when the core requirements are fulfilled, supporting the taxpayer’s economic activities.

Article in the EU VAT Directive

Article 168(a) of the EU VAT Directive 2006/112/EC.

Article 168
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;

Facts

VGL, a company established in Austria, produces various moulded parts in the course of its economic activity. It processes those parts in Romania, where it is registered for VAT purposes. To that end, it concluded a framework contract with Austrex Handels GmbH (‘Austrex’), established in Austria, under which Austrex is able to use the services of a subcontractor, namely Global Energy Products SA (‘GEP’), established in Romania.
Once the processing has been carried out, the moulded parts are sent and invoiced by VGL to customers in the European Union. It is apparent from the file before the Court that VGL states its Romanian VAT number when invoicing those parts.
In the course of its processing activity, VGL makes available to Austrex, pursuant to a right of use transferable to GEP, a building located in Cluj-Napoca (Romania), which VGL owns. VGL also makes available, free of charge, for the use of GEP, which processes the parts produced by VGL, a crane which VGL acquired and installed on the grounds of that building.
VGL was the subject of an advance tax inspection by the tax authority on account of the filing of a VAT return for June 2021 indicating a negative balance with the option of a refund. During that inspection, that tax authority found that, first, VGL had not drawn up accounting statements indicating the income and the expenditure incurred in the course of its activity in Romania and that, second, the building in which GEP carries on its activities had been made available to Austrex free of charge. In the light of those factors, that authority took the view that VGL had not adduced evidence that the acquisition of the crane had been made for the purposes of its economic activity and refused the deduction of the VAT relating to that acquisition.
VGL challenged the tax authority’s tax assessment before the Tribunalul Cluj (Regional Court, Cluj, Romania), which dismissed the action, essentially on the same grounds as those put forward by the tax authority. That court added that the processing activity carried out in Romania generated income for VGL only indirectly, the direct beneficiaries of that activity being Austrex and GEP, since those two companies invoiced VGL for the work in respect of which the purchased crane was used.
VGL brought an appeal against the judgment of that court before the Curtea de Apel Cluj (Court of Appeal, Cluj, Romania), which is the referring court.
The referring court is uncertain, first, as to the compatibility with the provisions of Title X of Directive 2006/112, relating to deductions, of a national practice that consists in denying a taxable person the right to deduct VAT where goods acquired by that taxable person are made available, free of charge, to a subcontractor in order for that subcontractor to carry out work for that taxable person, on the ground that the goods are considered as having been acquired, not for the purposes of that taxable person’s taxed transactions, but for those of that subcontractor. Second, it asks whether the fact that VGL did not keep separate accounts for its permanent establishment in Romania is relevant in that regard.

Summary

The case involves Voestalpine, an Austrian company that sought the annulment of an assessment notice rejecting its request for a VAT refund in Romania. The company is registered for VAT in Romania and sends parts to be processed by a Romanian subcontractor. The tax authorities registered the company as having a permanent establishment in Romania, which the company disputed but lost in court. The dispute over the VAT refund arose because the company did not provide sufficient evidence that the purchases were made for its economic activity. The company challenged the tax assessment but lost in court.

Questions

1. Do the provisions of Council Directive 2006/112/EC on the right to deduct VAT preclude a national practice whereby, if a company purchases goods which it then makes available to a subcontractor free of charge so that the subcontractor may carry out activities for the first company, that company is refused the right to deduct the VAT on the goods purchased, on the grounds that the purchase is deemed not to be for the purposes of its own taxable transactions but for the purposes of the subcontractor’s taxable transactions?
Do the provisions of Council Directive 2006/112/EC on the right to deduct VAT preclude a national practice whereby a taxable person is refused the right to made deductions on the grounds that he or she has not kept separate accounts for his or her permanent establishment in Romania, thus preventing the tax authorities from verifying the costs of the labour used for the cast products of which the owner is [that taxable person], let alone the entire processing activity carried out in Romanian territory?

Summary

Does EU Directive 2006/112/EC allow for a national practice where a company is denied the right to deduct VAT on goods purchased if they are provided to a subcontractor for the subcontractor’s taxable transactions? Similarly, does the directive allow for a national practice where a taxable person is denied the right to deduct VAT due to a lack of separate accounts for their permanent establishment in Romania, hindering the tax authorities from verifying costs related to labor and processing activities carried out in Romanian territory?

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 precluding a national practice whereby, where a taxable person has acquired goods which that taxable person then makes available free of charge to a subcontractor, in order for that subcontractor to carry out work for that taxable person, that taxable person is denied the deduction of the VAT relating to the acquisition of those goods, in so far as the making available of those goods does not go beyond what is necessary to enable that taxable person to carry out one or more taxable output transactions or, failing that, to carry out its economic activity, and the cost of acquiring those goods is part of the cost components of either the transactions carried out by that taxable person or the goods or services which that taxable person supplies in the course of its economic activity.

2. Article 168(a) of Directive 2006/112

must be interpreted as precluding a national practice whereby a taxable person is denied the deduction of input VAT on the ground that that taxable person has not kept separate accounts for its fixed establishment in the Member State in which the tax inspection is carried out where the tax authorities are in a position to determine whether the substantive conditions of the right of deduction are satisfied.

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