CJEU – Recent Developments in Value Added Tax 2018

S. 263Deductions in VAT Law – Recent Case Law of the CJEU

Charlène A. Herbain

1. S. 264Introduction

The European system of VAT is the consumption tax system with the widest jurisdiction in the world and the deduction mechanism is the cornerstone of that system. That is how important the deduction mechanism is.

It allows the economic burden of VAT to fall only on the final consumer, therefore ensuring the neutrality of taxation of all economic activities, and the levy of the tax to be controlled throughout the economic cycle.

The deduction mechanism is intended to relieve traders of all the VAT payable or paid in the course of their economic activities. This is the reason why the CJEU has ruled on many occasions that the right of deduction cannot be limited by Member States and that it is exercisable by traders immediately in respect of all the taxes charged on transactions relating to their inputs.

This said, the deduction right that traders are granted is not always immediate and full. The rules, referred to as the material and formal conditions, set by the VAT Directive to operate the deduction mechanism have, to a certain extent, the effect of limiting the deduction right of traders.

In the case l...