CJEU - Recent Developments in Value Added Tax 2017

1. S. 330Introduction

The European Value Added Tax (VAT) is designed in such a way that VAT applies to each transaction which takes place in the production and distribution process. Without a mechanism to deduct or refund the input VAT, tax cascading would occur and, as a consequence, the final VAT burden would depend upon the length of the production and distribution chain. The European VAT achieves neutrality by granting a taxable person the right to deduct his input VAT if the goods or services acquired are used for the taxable person’s taxed output transactions.

The CJEU has divided the requirements for an input VAT deduction, as set by the EU VAT Directive, into substantive and formal conditions. The substantive conditions are a reflection of the elements of the key provision on the right to deduct, Art. 168 of the VAT Directive. First, the party claiming an input VAT deduction must be a taxable person. Second, the supplies must be supplied to the taxable person. Third, the supplies must be used by the taxable person for his own taxed output transactions. And fourth, the goods or services must be supplied by another taxable person.

It is particularly the third requirement - that input ...