Comments on ECJ C-527/23: Weatherford Atlas – VAT Deduction Principles Clarified

CJEU Ruling on VAT Deduction: On December 12, 2024, the Court of Justice of the European Union (CJEU) ruled in the Weatherford Atlas GIP case that taxpayers must demonstrate the use of purchases for VAT deduction eligibility, but tax authorities cannot deny VAT deduction based on the necessity or appropriateness of the purchase.
Case Background: Weatherford SA, part of the Weatherford group in Romania, received services from foreign entities and reclaimed reverse charged VAT. The Romanian Tax Authorities denied the VAT deduction, arguing the services benefited multiple group companies and were shareholder costs.
Principles of VAT Deduction: The CJEU emphasized the neutrality of the EU VAT system, allowing VAT deduction for general costs as long as they are used for the taxpayer’s own taxable activities, not for another entity’s activities.
Benefit/Use Test: The CJEU stated that VAT deduction depends on proving the services were used for the taxpayer’s taxable activities. The cost allocation must correspond to the scope of services received, regardless of multiple group entities benefiting from the services.
Impact on Transfer Pricing (TP) and VAT: The case highlights the interaction between TP and VAT, requiring comprehensive TP documentation to support VAT treatment. This includes detailing the nature of intra-group services, cost allocation, and benefits to demonstrate compliance and defend against VAT challenges.