CJEU – Recent Developments in Value Added Tax 2018

S. 285Comments on Session 7: Input VAT Deductions in VAT Law

Peter Sanderson

1. S. 286Background

The Principal VAT Directive distinguishes the fundamental right to deduct, governed by Art. 167 of the VAT Directive, from the exercise of that right, governed by Art. 178 of the VAT Directive. In accordance with Art. 167, the “right of deduction shall arise at the time the deductible tax becomes chargeable”. Amongst other rules, Article 178 provides that in order to exercise the right to deduct, a taxpayer must hold a VAT invoice.

The first two cases addressed within Charlène Herbain’s paper, Volkswagen AG C-533/16 and Biosafe C-8/17, consider in essence the interaction between Art. 167 and Art. 178 of the VAT Directive. At what point exactly, in the invoicing and accounting process, is a taxpayer entitled to deduct VAT; and can that point differ in certain specific circumstances.

Since 2004, when the CJEU delivered its judgment in the Terra Baubedarf-Handel GmbH case, it has been clear that under normal circumstances, and assuming the substantive conditions are met, a taxpayer may only deduct VAT it has been charged once it is in possession of a VAT invoice. A compliant taxpayer will therefore file it...