CJEU – Recent Developments in Value Added Tax 2015

I. S. 314Introduction

Picture a talented student who begins studying consumption taxation and actually paying genuine attention to the principles that are the fundament of the system. The student would conclude that all traders should, in principle, always be allowed to deduct VAT. Only private consumption is intended to be taxed, therefore, how can it be justified that a trader cannot deduct VAT? VAT must always be deductible unless, of course, in the rare situation when a business assumes acquisitions exclusively for private consumption purposes.

The EU VAT system, as explained by the Court of Justice, relays a different story. A taxable person can only deduct if the acquisition has a direct and immediate link with a transaction generating the right to deduct, the direct link test. This test was first formulated in BLP, however, has become increasingly obscure.

The position of the Court has consistently been aligned to the theoretically pure result – taxing consumption expenditure. The deduction system is meant to entirely relieve the trader of the burden of VAT for all of its transactions that in themselves give the right to deduct. The VAT system ensures complete neutrality in regard to...