The Court of Justice of the European Union (CJEU) has consistently reinforced that a taxpayer’s right to deduct input VAT incurred is fundamental and that any conditions placed on it should not affect its efficacy and basic application (Judgment of 22 October 2015, Sveda, Case C-126/14 EU:C:2015:712; Judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, Case C-132/16 EU:C:2017:683; Judgment of 16 July 2015, Larentia + Minerva, Cases C-108/14 and C-109/14 EU:C:2015:496; Judgment of 21 March 2018, Volkswagen AG, Case C-533/16 EU:C:2018:204; and Judgment of 12 April 2018, Biosafe, Case C-8/17 EU:C:2018:249). Also, from the other judgements of the CJEU, mentioned in this text, the following is concluded:
1) Judgment of 22 October 2015, Sveda, Case C-126/14 EU:C:2015:712
Article 168 of Directive 2006/112 on the common system of value added tax must be interpreted as granting a taxable person the right to deduct the input value added tax paid for the acquisition or production of capital goods, for the purposes of a planned economic activity related to rural and recreational tourism, which are (i) directly intended for use by the public free of charge, and may (ii) enable taxed transactions to be carried out, provided that a direct and immediate link is established between the expenses associated with the input transactions and an output transaction or transactions giving rise to the right to deduct or with the taxable person’s economic activity as a whole, which is a matter for the national court to determine on the basis of objective evidence.
In that respect, immediate use of capital goods free of charge does not affect the existence of the direct and immediate link, in so far as, first, the making available of the recreational path to the public is not covered by any exemption under Directive 2006/112 and, second, the expenditure incurred by the taxable person in creating that path can be linked to his economic activity, since that expenditure does not relate to activities that are outside the scope of value added tax.
2) Judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, Case C-132/16 EU:C:2017:683
Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a taxable person has the right to deduct input value added tax in respect of a supply of services consisting of the construction or improvement of a property owned by a third party when that third party enjoys the results of those services free of charge and when those services are used both by the taxable person and by the third party in the context of their economic activity, in so far as those services do not exceed that which is necessary to allow that taxable person to carry out the taxable output transactions and where their cost is included in the price of those transactions.
3) Judgment of 16 July 2015, Larentia + Minerva, Cases C-108/14 and C-109/14 EU:C:2015:496
4) Judgment of 21 March 2018, Volkswagen AG, Case C-533/16 EU:C:2018:204
EU law must be interpreted as precluding legislation of a Member State under which, in circumstances such as those at issue in the main proceedings in which the value added tax (VAT) was charged to the taxable person and paid by it several years after delivery of the goods in question, the benefit of the right to claim a refund of VAT is denied on the grounds that the limitation period provided for by that legislation for the exercise of that right began to run from the date of supply and expired before the application for a refund was submitted.
5) Judgment of 12 April 2018, Biosafe, Case C-8/17 EU:C:2018:249
Articles 63, 167, 168, 178 to 180, 182 and 219 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and also the principle of fiscal neutrality, must be interpreted as precluding legislation of a Member State pursuant to which, in circumstances such as those at issue in the main proceedings in which, following a tax adjustment, additional value added tax (VAT) was paid to the State and was the subject of documents rectifying the initial invoices several years after the supply of the goods in question, the right to deduct VAT is to be refused on the ground that the period laid down by that legislation for the exercise of that right started to run from the date of issue of those initial invoices and had expired.
6) Judgment of 21 January 2010, Alstom Power Hydro, Case C-472/08 EU:C:2010:32
Article 18(4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment is to be interpreted as not precluding legislation of a Member State, such as that at issue in the main proceedings, which lays down a limitation period of three years in which to make an application for the refund of excess value added tax collected by, though not due to, the tax authority.
7) Judgment of 12 May 2011, Enel Maritsa Iztok 3, Case C-107/10 EU:C:2011:298
8) Judgment of 6 July 2017, Glencore Grain Hungary, Case C-254/16 EU:C:2017:522
EU law must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which, where a tax investigation procedure is initiated by a tax authority and where a taxable person is fined for failure to cooperate, the date of the refund of overpaid value added tax may be delayed until the formal report on that investigation is delivered to the taxable person and the payment of default interest may be refused, even where the duration of the tax investigation procedure is excessive and cannot be attributed entirely to the conduct of the taxable person.
Where the refund of the overpaid VAT to the taxable person is not made within a reasonable period, the principle of fiscal neutrality of the VAT system requires that the financial losses incurred by the taxable person owing to the unavailability of the sums of money at issue should be compensated through the payment of default interest (judgment of 24 October 2013, Rafinăria Steaua Română, C 431/12, EU:C:2013:686, paragraph 23).
Since the referring court raises, in that regard, the issue of the implications of the conduct of a taxable person whose negligence during a tax investigation procedure was penalised by several fines, it should be noted, as the Hungarian Government claims, that it cannot be accepted that a taxable person who, by refusing to cooperate with a tax authority and by thus impeding the conduct of the investigation procedure, caused the delay in the refund of overpaid VAT, may claim default interest for that delay.
Nevertheless, national legislation or practices according to which the mere fact that a taxable person has been fined due to his negligence during a tax investigation to which he was subject allows the tax authority to extend that investigation over a period not justified by that negligence, without having to pay him default interest, cannot be considered to be compatible with the requirements arising from the principle of fiscal neutrality.
Accordingly, in a situation such as that at issue in the main proceedings, for the purposes of determining whether default interest is due and, where relevant, the point in time from which the right to such interest arises, the proportion of the duration of the tax investigation procedure which can be attributed to the conduct of the taxable person must be ascertained.
9) Judgment of 28 July 2011, Commission v Republic of Hungary, Case C-274/10 EU:C:2011:530
Declares that the Republic of Hungary,
has failed to fulfil its obligations under that directive.
10) Judgment of 18 October 2012, Mednis SIA, Case C-525/11 EU:C:2012:652
Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not authorising the tax authority of a Member State to defer, without undertaking a specific analysis and solely on the basis of an arithmetical calculation, the refund of part of the excess VAT which has arisen during a one-month tax period, pending the examination by that authority of the taxable person’s annual tax return.
11) Judgment of 10 July 2008, Alicja Sosnowska, Case C-25/07 EU:C:2008:395
12) Judgment of 24 October 2013, Rafinaria Steaua Romana SA, Case C-431/12 EU:C:2013:686
Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding a situation in which a taxable person, having made a claim for refund of excess input value added tax over the value added tax which it is liable to pay, cannot obtain from the tax authorities of a Member State default interest on a refund made late by those authorities in respect of a period during which administrative measures precluding the refund, which were subsequently annulled by a court ruling, were in force.
13) Judgment of 16 March 2017, Bimotor SpA, Case C-211/16 EU:C:2017:221
The first paragraph of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which limits to a set maximum amount the compensation of certain tax debts by value added tax credits, for each taxation period, to the extent that national law provides in any event the possibility for the taxable person to recover the full value added tax credit within a reasonable period.
14) Judgment of 28 February 2018, Nidera B.V., Case C-387/16 EU:C:2018:121
Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principle of fiscal neutrality, must be interpreted as precluding a reduction in the amount of interest normally payable under national law on overpaid value added tax which was not refunded in due time for reasons connected to circumstances not attributable to the taxable person, such as the high amount of that interest when compared with the amount of the overpaid value added tax, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person.
15) Judgment of 18 December 1997, Garage Molenheide BVBA, Cases C-286/94, C340/95, C-401/95, C-47/96 EU:C:1997:623
It is for the national court to examine whether or not the measures inquestion and the manner in which they are applied by the competentadministrative authority are proportionate. In the context of thatexamination, if the national provisions or a particular construction of themwould constitute a bar to effective judicial review, in particular review ofthe urgency and necessity of retaining the refundable VAT balance, andwould prevent the taxable person from applying to a court for replacementof the retention by another guarantee sufficient to protect the interests ofthe Treasury but less onerous for the taxable person, or would prevent anorder from being made, at any stage of the procedure, for the total orpartial lifting of the retention, the national court should disapply thoseprovisions or refrain from placing such a construction on them. Moreover,in the event of the retention being lifted, calculation of the interest payableby the Treasury which did not take as its starting point the date on whichthe VAT balance in question would have had to be repaid in the normalcourse of events would be contrary to the principle of proportionality.
16) Judgment of 14 February 1985, Rompelman, Case C-268/83 EU:C:1985:74
The acquisition of a right to the future transfer of property rights in part of a building yet to be constructed with a view to letting such premises in due course may be regarded as an economic activity within the meaning of article 4 ( 1 ) of the Sixth Directive. However , that provision does not preclude the tax administration from requiring the declared intention to be supported by objective evidence such as proof that the premises which it is proposed to construct are specifically suited to commercial exploitation.
17) Judgment of 11 April 2013, Rusedespred, Case C-138/12 EU:C:2013:233
18) Judgment of 25 October 2001, Commission vs Italy, Case C-78/00 EU:C:2001:579
Declares that by providing that the category of taxable persons whose tax position for 1992 is in credit be belatedly issued with Government bonds instead of refunds of the excess value added tax the Italian Republic has failed to fulfil its obligations under Articles 17 and 18 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax - scope of certain exemptions and practical arrangements for implementing them.
19) Judgment of 22 October 2015, PPUH Stehcemp, Case C-277/14 EU:C:2015:719
The provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2002/38/EC of 7 May 2002, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, by which a taxable person is not allowed to deduct the value added tax due or paid in respect of goods that were delivered to him on the grounds that the invoice was issued by a trader which is to be regarded, in the light of the criteria provided by that legislation, as a non-existent trader, and that it is impossible to determine the identity of the actual supplier of the goods, except where it is established, on the basis of objective factors and without the taxable person being required to carry out checks which are not his responsibility, that that taxable person knew, or should have known, that that transaction was connected with value-added-tax fraud, this being a matter for the referring court to determine.
20) Judgment of 19 July 2012, Littlewoods Retail, Case C-591/10 EU:C:2012:478
European Union law must be interpreted as requiring that a taxable person who has overpaid value added tax which was collected by the Member State contrary to the requirements of European Union legislation on value added tax has a right to reimbursement of the tax collected in breach of European Union law and to the payment of interest on the amount of the latter. It is for national law to determine, in compliance with the principles of effectiveness and equivalence, whether the principal sum must bear ‘simple interest’, ‘compound interest’ or another type of interest.
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The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.
Ksenija Cipek is based in Zagreb, Croatia and she is a lecturer at the local University of Law and a Member of European Law Institute. Ksenija has over 20 years experience working at the Ministry of Finance and the Tax Administration. She is a highly respected and recognised tax expert who has been heavily involved in lawmaking. Ksenija is also an author and books writer.
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