CJEU – Recent Developments in Value Added Tax 2014

S. 153VAT Deductions

Charlène Herbain

I. S. 154Introduction

VAT targets consumption which means that it shall be neutral to businesses. However because of its multi-stage design, value added tax (VAT) is charged to businesses and then a relief is granted by way of deduction or refund. Therefore, and logically, the VAT system has been found to be neutral if businesses are relieved of the burden of VAT incurred on their purchases (i.e. input VAT). In that respect, the Court of Justice of the European Union (CJEU)’s interpretation of the VAT Directive on the issue of the recovery of input VAT is of the utmost relevance.

The case law of the CJEU on issues of the recovery of input VAT over the last 12 months addresses the specific requirements for VAT to be deductible.

Deductible VAT is VAT incurred on the acquisition of goods or services intended for production or for other economic, or deemed economic, activity and which a taxable person is entitled to withhold from his own liability to, or to be refunded by, a Member State in respect of VAT invoiced on his transactions. To be deductible, VAT must be incurred by a taxable person acting as such and the invoicing party must also be a taxable person. It ...