C-126/14 Sveda

JUDGMENT OF THE COURT (Fifth Chamber)

22 October 2015 ( * )

‛Reference for a preliminary ruling — VAT — Directive 2006/112/EC — Article 168 — Right of deduction — Deduction of input VAT on the acquisition or production of capital goods — Recreational path directly intended for use by the public free of charge — Use of the recreational path as a means of carrying out taxed transactions’

In Case C‑126/14,

REQUEST for a preliminary ruling under Article 267 TFEU from the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court, Lithuania), made by decision of 18 February 2014, received at the Court on 17 March 2014, in the proceedings

‘Sveda’ UAB

v

Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos,

third party:

Klaipėdos apskrities valstybinė mokesčių inspekcija,

THE COURT (Fifth Chamber),

composed of T. von Danwitz, President of the Fourth Chamber, acting as President of the Fifth Chamber, D. Šváby, A. Rosas, E. Juhász and C. Vajda (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: M. Aleksejev, Administrator,

having regard to the written procedure and further to the hearing on 4 February 2015,

after considering the observations submitted on behalf of:

the Lithuanian Government, by D. Kriaučiūnas, R. Dzikovič and D. Stepanienė, acting as Agents,

the United Kingdom Government, by S. Brighouse, J. Kraehling and M. Holt, acting as Agents, and O. Thomas, Barrister,

the European Commission, by L. Lozano Palacios and A. Steiblytė, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 22 April 2015,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

2The request has been made in proceedings between ‘Sveda’ UAB (‘Sveda’) and the Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania; ‘the State Tax Inspectorate’) concerning a decision refusing deduction of the input value added tax (‘VAT’) paid by Sveda in the context of the creation of a Baltic mythology recreational and discovery path (‘the recreational path’).

Legal context

EU law

3Article 9(1) of the VAT Directive provides:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

4Article 63 of that directive provides:

‘The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.’

5Article 167 of the directive is worded as follows:

‘A right of deduction shall arise at the time the deductible tax becomes chargeable.’

6Article 168 of the same directive provides:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

…’

Lithuanian law

7Article 58(1)(1) of Law No IX-751 of 5 March 2002 on value added tax is worded as follows:

‘A taxable person for VAT purposes shall have the right to deduct input and/or import VAT in respect of goods and/or services acquired and/or imported, if those goods and/or services are intended to be used for the following activities performed by that taxable person:

the supply of goods and/or the provision of services on which VAT is charged’.

The dispute in the main proceedings and the question referred for a preliminary ruling

8Sveda is a for-profit legal person whose activities consist in the provision of accommodation, food and beverages, the organisation of trade fairs, conferences and leisure activities, as well as the engineering and consultation associated with those activities.

9On 2 March 2012 Sveda concluded a subsidisation agreement with the National Paying Agency under the Ministry of Agriculture (Nacionalinė mokėjimo agentūra prie Žemės ūkio ministerijos). Under that agreement, Sveda undertook to implement the project entitled ‘Baltic mythology recreational (discovery) path’ and to offer the public access to it free of charge. That agency committed itself to assuming a share of up to 90% of the costs of implementing the project, with the remaining expenses to be covered by Sveda.

10Sveda deducted the VAT relating to the acquisition or production of certain capital goods as part of the construction work on the recreational path concerned and drew up a VAT declaration for the month of June 2012, in which it referred to the input tax as being deductible. However, the State Tax Inspectorate, Region of Klaipėda (Klaipėdos apskrities valstybinė mokesčių inspekcija), seised of a request by Sveda for the repayment of the VAT concerned, found that there was no justification for such a repayment, since it was not established that the goods and services acquired were intended to be used for the purposes of an activity subject to VAT. On that basis, on 24 August 2012 the State Tax Inspectorate, Region of Klaipėda, refused deduction of those amounts.

11Sveda brought an action before the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court) seeking annulment of the decision refusing that deduction. That action was dismissed as unfounded.

12Sveda then brought an appeal before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court).

13Although, in the referring court’s view, Sveda incurred the investment expenditure concerned with the intention of carrying out economic activities in the future, the referring court nevertheless is doubtful as to the deductibility of the input VAT. It questions, in that regard, whether there is a direct and immediate link between the expenses associated with the construction work carried out and the economic activities planned by Sveda, on the ground that the recreational path is directly intended for use by the public free of charge.

14It was in those circumstances that the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Can Article 168 of the VAT Directive be interpreted as granting a taxable person the right to deduct the input VAT paid in producing or acquiring non-current assets intended for business purposes, which, as in the case in the main proceedings, are directly intended for use by members of the public free of charge, but may be recognised as a means of attracting visitors to a location where the taxable person, in carrying out his economic activities, plans to supply goods and/or services?’

Consideration of the question referred for a preliminary ruling

15By its question, the referring court essentially asks whether Article 168 of the VAT Directive must be interpreted as granting, in circumstances such as those in the case in the main proceedings, a taxable person the right to deduct the input VAT 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) be a means of carrying out taxed transactions.

16In order to answer that question, it should, as a preliminary point, be recalled that the right of deduction provided for in Article 168(a) of the VAT Directive is an integral part of the VAT scheme and in principle may not be limited. The right to deduct is exercisable immediately in respect of all the taxes charged on input transactions (see, to that effect, judgment in SKF, C‑29/08, EU:C:2009:665, paragraph 55 and the case-law cited).

17The deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (see, inter alia, judgment in Eon Aset Menidjmunt, C‑118/11, EU:C:2012:97, paragraph 43 and the case-law cited).

18It follows from Article 168 of the VAT Directive that, in so far as the taxable person, acting as such at the time when he acquires goods, uses the goods for the purposes of his taxed transactions, he is entitled to deduct the VAT paid or payable in respect of the goods (see, inter alia, judgment in Klub, C‑153/11, EU:C:2012:163, paragraph 36 and the case-law cited).

19As regards, in the first place, whether Sveda was acting as a taxable person during construction of the recreational path, that is to say, for the purposes of an economic transaction, within the meaning of the second subparagraph of Article 9(1) of the VAT Directive, it should be noted that goods and services may be acquired, by a taxable person, for the purposes of an economic activity within the meaning of that provision, even if the goods are not used immediately for that economic activity (see, to that effect, judgment in Lennartz, C‑97/90, EU:C:1991:315, paragraph 14).

20It is settled case-law that a person who incurs investment expenditure with the intention, confirmed by objective evidence, of engaging in economic activity within the meaning of Article 9(1) of the VAT Directive must be regarded as a taxable person. Acting in that capacity, he has therefore, in accordance with Article 167 et seq. of that directive, the right immediately to deduct the VAT payable or paid on the investment expenditure incurred for the purposes of the transactions which he intends to carry out and which give rise to the right to deduct (see, to that effect, judgment in Gran Via Moineşti, C‑257/11, EU:C:2012:759, paragraph 27 and the case-law cited). That right to deduct arises, in accordance with Articles 63 and 167 of the VAT Directive, at the time when the tax becomes chargeable, namely when the goods are delivered (judgment in Klub, C‑153/11, EU:C:2012:163, paragraph 36 and the case-law cited).

21Whether a taxable person acts as such for the purposes of an economic activity is a question of fact which must be assessed in the light of all the circumstances of the case, including the nature of the asset concerned and the period between the acquisition of the asset and its use for the purposes of the taxable person’s economic activity (see, inter alia, to that effect, judgment in Klub, C‑153/11, EU:C:2012:163, paragraphs 40 and 41 and the case-law cited). It is for the referring court to make that assessment.

22In the present case, the referring court has described the expenses relating to the capital goods at issue in the main proceedings as being ultimately intended for carrying out the economic activities planned by Sveda. According to that court’s findings, supported by objective evidence from the file it submitted, the recreational path concerned may be regarded as a means of attracting visitors with a view to providing them with goods and services, such as souvenirs, food and drinks as well as access to attractions and paid-for bathing.

23Therefore, it would appear from those findings that Sveda acquired or produced the capital goods concerned with the intention, confirmed by objective evidence, of carrying out an economic activity and did, consequently, act as a taxable person within the meaning of Article 9(1) of the VAT Directive.

24That finding is in no way put into question by the circumstance noted by the Lithuanian Government that, under the subsidisation agreement concerned, those capital goods will have to be made available to the public at no cost for a period of five years from their acquisition, and therefore cannot be used during that same period as part of Sveda’s economic activities.

25The fact that such a subsidisation agreement does not permit, during that period, the recreational path at issue in the main proceedings to be made available in return for consideration does not prevent Sveda from carrying out the economic activities set out in paragraph 22 of this judgment. More specifically, according to the referring court, it may be considered that the recreational path is intended to attract visitors and to encourage them to buy the goods and services subject to VAT that Sveda offers. Moreover, according to the order for reference, the investment expenditure incurred by Sveda, a legal person pursuing a commercial objective, for the construction of the recreational path will be covered, at least in part, by the income from the provision of goods and services as part of those planned economic activities.

26As regards, in the second place, whether the capital goods at issue in the main proceedings are being used by Sveda for the purposes of its taxed transactions, in accordance with Article 168 of the VAT Directive, it follows from the findings made by the referring court that the acquisition or production of those capital goods is directly intended for use by the public free of charge, but that, at the same time, it is part of the taxable person’s objective of carrying out subsequent taxed transactions.

27According to settled case-law, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to entitlement to deduct is, in principle, necessary before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (see, inter alia, judgment in SKF, C‑29/08, EU:C:2009:665, paragraph 57).

28Nevertheless, as the Advocate General observed in points 33 and 34 of her Opinion, the Court has held that a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the expenditure incurred is part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such expenditure does have a direct and immediate link with the taxable person’s economic activity as a whole (see, to that effect, judgments in Investrand, C‑435/05, EU:C:2007:87, paragraph 24, and SKF, C‑29/08, EU:C:2009:665, paragraph 58).

29It is apparent from the case-law of the Court that, in the context of the direct-link test that is to be applied by the tax authorities and national courts, they should consider all the circumstances surrounding the transactions concerned and take account only of the transactions which are objectively linked to the taxable person’s taxable activity. The existence of such a link must thus be assessed in the light of the objective content of the transaction in question (see, to that effect, judgment in Becker, C‑104/12, EU:C:2013:99, paragraphs 22, 23 and 33 and the case-law cited).

30The findings of the referring court establish that, in the case in the main proceedings, the expenditure incurred by Sveda as part of the construction work on the recreational path should come partly within the price of the goods or services provided in the context of its planned economic activity.

31The referring court nevertheless harbours doubts as to whether there is a direct and immediate link between the input transactions and Sveda’s planned economic activity as a whole, owing to the fact that the capital goods concerned are directly intended for use by the public free of charge.

32In that regard, the case-law of the Court makes it clear that, where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (judgment in Eon Aset Menidjmunt, C‑118/11, EU:C:2012:97, paragraph 44 and the case-law cited). In both cases, the direct and immediate link between the input expenditure incurred and the economic activities subsequently carried out by the taxable person is severed.

33First, in no way does it follow from the order for reference that the making available of the recreational path to the public is covered by any exemption under the VAT Directive. Second, given that the expenditure incurred by Sveda in creating that path can be linked, as is apparent from paragraph 23 of this judgment, to the economic activity planned by the taxable person, that expenditure does not relate to activities that are outside the scope of VAT.

34Therefore, immediate use of capital goods free of charge does not, in circumstances such as those in the main proceedings, affect the existence of the direct and immediate link between input and output transactions or with the taxable person’s economic activities as a whole and, consequently, that use has no effect on whether a right to deduct VAT exists.

35Thus, there does appear to be a direct and immediate link between the expenditure incurred by Sveda and its planned economic activity as a whole, which is, however, a matter for the referring court to determine.

36Moreover, adjustment periods for deductions do not have, as such, any effect on the origin of the right to deduction of VAT (see, to that effect, judgment in Lennartz, C‑97/90, EU:C:1991:315, paragraphs 8 and 20), which, according to the case-law cited in paragraph 20 of the present judgment, is determined solely by the capacity in which the interested party is acting when acquiring the goods concerned. This applies, however, without prejudice to the repayment of input VAT, which the taxable person will have to effect if it subsequently proves that the acquired or produced input goods have not been used for the purposes of his economic activity.

37Having regard to all the foregoing considerations, the answer to the question asked is that Article 168 of the VAT Directive must be interpreted as granting, in circumstances such as those in the main proceedings, a taxable person the right to deduct the input VAT 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 referring court to determine on the basis of objective evidence.

Costs

38Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Fifth Chamber) hereby rules:

Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as granting, in circumstances such as those in the main proceedings, 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 referring court to determine on the basis of objective evidence.

Signatures

[Signatures]

( * ) Language of the case: Lithuanian.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 22 April 2015 ¹

‛Tax legislation — Value added tax — Article 168 of Council Directive 2006/112/EC — Deduction of input tax on the acquisition and manufacture of capital goods — Primary use for untaxed transactions — Secondary use for taxed transactions’

I – Introduction

1This request for a preliminary ruling concerns the charging of value added tax (VAT) in relation to a Baltic mythology recreational path. A Lithuanian company provides this path to visitors free of charge. The tax authorities have therefore refused the company’s application to deduct the input VAT paid on the costs of creating the path. The company regards this decision as mistaken because ultimately the visitors are indeed meant to make some sort of payment, if not for using the path itself then at least for food and drink, souvenirs and other services provided by the company.

2Determining who is right in the case in the main proceedings thus depends on how a direct and immediate link is to be established between input and output transactions, which in case-law is decisive for the question of VAT deduction. Although the abstract requirements for this link have been set out previously, their specific application may sometimes require further clarification, as in this case.

II – Legal framework

3During the period to which the case in the main proceedings relates, VAT is governed in the European Union by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’). ²

4The first subparagraph of Article 9(1) of the VAT Directive defines the term ‘taxable person’ as any person who, ‘independently, carries out in any place any economic activity, whatever the purpose or results of that activity’. The second subparagraph of the provision adds:

‘Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

5Under Article 2(1)(a) and (c) of the VAT Directive the ‘supply of goods’ and ‘services’‘for consideration within the territory of a Member State by a taxable person acting as such’ is taxable.

6Article 26(1) of the VAT Directive adds:

‘Each of the following transactions shall be treated as a supply of services for consideration:

the use of goods forming part of the assets of a business for the private use of a taxable person or of his staff or, more generally, for purposes other than those of his business, where the VAT on such goods was wholly or partly deductible;

…’

7Article 168 of the VAT Directive provides for the following right of deduction of a taxable person:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

…’

8This provision corresponds to Article 17(2) of the 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, ³ which was in force until 31 December 2006. The case-law adopted by the Court in respect of this legislation will also be taken into consideration in this case.

9Finally, Article 187 of the VAT Directive provides the following regarding the adjustment of the VAT deduction:

‘1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.

…

2. The annual adjustment shall be made only in respect of one fifth of the VAT charged on the capital goods …

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.’

10Lithuanian law contains provisions equivalent to those provisions of the VAT Directive.

III – Main proceedings

11The company Sveda UAB (‘Sveda’) is the applicant in the main proceedings. The question at issue in this dispute is its right of deduction.

12In 2012 Sveda was working on the creation of a ‘Baltic mythology recreational/discovery path’ (‘the recreational path’). It created paths, steps, observation decks, campfire sites, an information stand and car parks.

13The work on creating this recreational path was performed on the basis of the obligations under an agreement that Sveda had entered into with the National Paying Agency under the Ministry of Agriculture (‘the Agency’). Under this agreement Sveda is required to provide the public with access to the recreational path free of charge. The agreement also establishes that Sveda is to be reimbursed up to 90% of the costs of setting up the path in the form of a ‘grant’.

14According to the findings of the national court, Sveda intends to carry out an independent economic activity within the meaning of Article 9(1) of the VAT Directive in the tourism sector. Visitors to the recreational path would thus be offered services, such as the sale of food or souvenirs, for consideration.

15In its VAT declaration Sveda claimed the input VAT that it had paid on goods and services purchased during the work of creating the recreational path. However, the Lithuanian tax authorities refused to reimburse those input VAT amounts because it had not, in their view, been shown that the goods and services purchased by Sveda were used for an activity subject to VAT.

IV – Procedure before the Court

16The Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania), seised of the case, referred the following question to the Court on 17 March 2014 under Article 267(3) TFEU:

‘Can Article 168 of the VAT Directive be interpreted as granting a taxable person the right to deduct the input VAT paid in producing or acquiring capital goods intended for business purposes, such as those in the present case, which (i) are directly intended for use by members of the public free of charge, but (ii) may be recognised as a means of attracting visitors to a location where the taxable person, in carrying out his economic activities, plans to supply goods and/or services?’

17In the proceedings before the Court, the Republic of Lithuania, the United Kingdom of Great Britain and Northern Ireland, and the European Commission all submitted written observations in July 2014 and attended the hearing held on 4 February 2015.

V – Legal assessment

18By referring this question for a preliminary ruling the national court seeks to ascertain whether a taxable person in a situation like that in the main proceedings enjoys a right of deduction under Article 168 of the VAT Directive.

19This provision states that a ‘taxable person’ is entitled to deduct the tax on his input transactions in so far as [the goods and services] ‘are used for the purposes of the taxed transactions’.

A – Allocation of the capital goods to the assets of the business

20In the case at hand, the Republic of Lithuania regards any right of deduction as excluded precisely because Sveda, although in principle a taxable person, did not act as such when creating the recreational path.

21According to settled case-law, the deduction of input VAT paid on purchased goods does indeed require that the taxable person should act as such when purchasing the goods, i.e. at least also for the purposes of his economic activity within the meaning of the second subparagraph of Article 9(1) of the VAT Directive. ⁴ The same applies to goods produced by the taxable person. ⁵

22In the final analysis, the purpose of this requirement is that goods should be allocated to the taxable person’s business assets in whole or in part so that any deduction of input VAT in respect of the purchase or manufacture of the goods is not excluded at the outset. ⁶ According to the case-law, whether this is the case must be determined in the light of all the circumstances of the case, including the nature of the goods concerned and the period between the acquisition of the goods and their use for the purposes of the taxable person’s economic activity. ⁷

23It is on this basis that the Republic of Lithuania questions the finding already made by the national court, whereby the capital goods at issue would belong to Sveda’s business assets. It argues that, under the agreement entered into with the Agency, Sveda is required to make the recreational path available to the public free of charge and may not use it for an economic activity until a later date. It follows from this that Sveda did not initially act as a taxable person.

24However, the Court has several times ruled that a person who acquires goods for the purposes of an economic activity within the meaning of the second subparagraph of Article 9(1) of the VAT Directive does so as a taxable person, even if the goods were not immediately used for such economic activities. ⁸

25Consequently, the national court correctly found that Sveda did act as a taxable person when acquiring or manufacturing the capital goods and that those capital goods must therefore be allocated to its business assets.

B – Use for the purposes of taxed transactions

26In order for Sveda to have a right of deduction, however, the capital goods would have not only to be allocated to its business assets, in other words, serve its economic activity generally, but also be used for the purposes of its taxed transactions in accordance with Article 168 of the VAT Directive.

27The use to which the goods are put, or intended to be put, determines the extent of the deduction of input tax. ⁹ The intended use is often decisive in this respect, for, in accordance with Articles 63 and 167 of the VAT Directive, the right to deduct arises in principle as soon as the taxable person receives goods or services, in other words often before he himself has provided his output transactions. ¹⁰

28The intended use of the capital goods acquired or manufactured by Sveda has already been established in the main proceedings.

29On the one hand, the recreational path is to be made available to the public free of charge. This operation is not taxed. There is no tax obligation deriving either from Article 2(1)(c) of the VAT Directive, because Sveda does not make visitors pay, or from its Article 26(1)(a), because the capital goods are not used for purposes other than those of its business within the meaning of this provision. Use for purposes other than those of his business is certainly excluded when the use of capital goods must be allocated to the taxable person’s economic activity. ¹¹ None the less, the national court has previously found that Sveda did act for the purposes of its economic activity when creating the path. ¹²

30On the other hand, the recreational path is also meant to attract visitors so that Sveda can offer them goods and services. These processes would be taxed under Article 2(1)(a) and (c) of the VAT Directive.

31The acquisition or manufacture of the capital goods thus serves two different aims. First and foremost of these is the provision of the recreational path to the public free of charge (primary use), which confers no right of deduction under Article 168 of the VAT Directive. However, besides that there is the use of the recreational path as a means of providing visitors with taxable services (secondary use), which gave rise to a right of deduction. Hence the question is: which of these two aims is decisive under Article 168 of the VAT Directive?

32In BLP Group, the Court came to the general conclusion on this question that a direct and immediate link of the acquired goods or services with the taxable transactions is necessary and that the ‘ultimate’ aim pursued by the taxable person is irrelevant in this respect. ¹³ The Court therefore refused the deduction of input VAT in a situation in which services had been provided to the taxable person in relation to the exempt sale of shares, even though this sale was a means of enabling the taxable activity of the taxable person. In other words, the Court made a distinction in this case between the solely decisive primary and the merely secondary use of an input transaction.

33However, the Court has further developed its case-law since that case. It still remains the case that for Article 168 of the VAT Directive to apply a direct and immediate link must have been found between a given input transaction under examination and a particular output transaction or transactions giving rise to the right of deduction. ¹⁴ Such a link may nevertheless also exist with the economic activity of the taxable person as a whole if the costs of the input transactions form part of the general costs of the taxable person and are therefore cost components of all goods or services delivered or provided by him. ¹⁵

34According to recent case-law, the decisive factor for a direct and immediate link is consistently that the cost of the input transactions be incorporated in the cost of individual output transactions or of all goods and services supplied by the taxable person. ¹⁶ This applies irrespective of whether the use of goods or services by the taxable person is at issue. ¹⁷

35Consequently, there is a right of deduction in the present case if the cost of acquiring or manufacturing the capital goods of the recreational path is incorporated, in accordance with case-law, in the cost of the output transactions, taxed under the VAT Directive.

36In the situation to which the case in the main proceedings relates there are various output transactions that could meet this requirement. One possibility might be the taxable services that Sveda wishes to provide to visitors of the recreational path and that are the subject of the question referred for a preliminary ruling (see point 2 below). On the other hand, a relevant taxed output transaction could also be the creation of the recreational path itself. This possibility was not considered by the national court in its order for reference. However, it must be the first possibility to be examined, since the outcome could make the answer to the specific question referred irrelevant for the main proceedings (see point 1 below).

1. The creation of the recreational path as a taxed output transaction

37It might be possible to assert that there exists a right of deduction in the main proceedings — irrespective of the answer to the specific question referred for a preliminary ruling — if the creation of the recreational path by Sveda itself constituted a taxed output transaction. In other words, the creation of the recreational path could constitute a service for consideration with respect to the Agency, which would be taxable under Article 2(a) or (c) of the VAT Directive.

38According to settled case-law, a transaction effected for a consideration requires only there to be a direct link between the supply of goods or the provision of services and the consideration actually received by the taxable person. ¹⁸ Such a direct link merely requires there to be a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, ¹⁹ as well as the reciprocal condition of service and consideration. ²⁰ Even supplying goods or services at less than the cost price does not mean that there can be no direct link between supply and consideration. ²¹

39According to the information provided by the national court, Sveda undertook to create the recreational path under an agreement with the Agency. In return, Sveda received from the party contracting its services a payment of 90% of the costs incurred, described as a ‘grant’. However, it is not possible to arrive at a definitive assessment of whether there is a direct link as understood in the cited case-law between the creation of the recreational path and the ‘grant’ without knowing the precise content of the agreement.

40Should the examination of the national court conclude that Sveda has already provided a taxed transaction under Article 2(a) or (c) of the VAT Directive by creating the recreational path, the acquisition or manufacture of the capital goods of the recreational path would be linked directly and immediately with this taxed output transaction. For there is no doubt in that case that the costs of these input transactions would be incorporated into the price, since the amount of the payment by the Agency is calculated precisely on the basis of those costs.

2. Reply to the question referred

41However, should the national court find that the creation of the recreational path by Sveda does not represent a taxed transaction, the right of deduction would then depend solely on whether the capital goods of the recreational path are used, for the purposes of Article 168 of the VAT Directive, for the provision of chargeable services to visitors in the future. For that to be the case, the costs of the acquisition and manufacture of these capital goods would have to be incorporated into the cost of these services.

a) Objective definition of costs

42Contrary to the view of the United Kingdom, this question is independent of the taxable person’s intention of incorporating the relevant costs into the pricing of his output transaction.

43In accordance with the judgment in Becker, the finding of a direct and immediate link between the input and output transactions depends on the objective content of the input supplies acquired. ²² In the BLP Group judgment the Court had already found to this effect that the link required between input and output transactions may not be determined by the taxable person’s intentions. ²³

44Furthermore, in the common system of VAT services are also taxed which were provided at less than cost price. ²⁴ Where this occurs, the pricing is set subjectively by the taxable person without including all the costs of providing the output transaction. None the less, where this is the case there is no doubt that all input transactions that objectively belong to the cost components of the output transactions in accordance with the second subparagraph of Article 1(2) of the VAT Directive also confer entitlement to deduct input VAT. According to settled case-law, the right of deduction is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, ²⁵ because in the common system of VAT it is ultimately not the taxable trader, but the final consumer who is intended to be taxed. ²⁶

45The existence of an objective economic link between input and output transactions is therefore crucial to the question whether the costs are incorporated into the price of a service as understood in case-law. ²⁷ A merely causal link is clearly not sufficient. ²⁸ However, if an input transaction objectively serves the purpose of the performance of certain or all output transactions of a taxable person, there is a direct and immediate link between the two as understood in case-law. This is because in such a case the input transaction constitutes, from an economic perspective, a cost component in the provision of the respective output transaction. As the wording of Article 168 of the VAT Directive already indicates, that therefore depends on the objective purpose of the use of an input transaction.

46In the present case the national court found that the creation of the recreational path serves to attract visitors who may then be supplied with goods and services for consideration. Consequently, the creation of the recreational path belongs, from an economic perspective, to the cost components of these transactions.

47It follows that there is in principle a direct and immediate link, as understood in case-law, between the acquisition or manufacture of the capital goods of the recreational path and the chargeable services offered to visitors.

b) Primary use for untaxed output transactions

48The fact that the recreational path is made available to visitors free of charge does not exclude the right of deduction.

49Although this is the primary use of the capital goods of the recreational path, such use may break the direct and immediate link with secondary use for taxed output transactions in two cases only. ²⁹

50The first case is if the primary use is for supplies provided for a consideration but exempt from VAT. Here the input transactions belong to the cost components of exempt output transactions and are thus incorporated into their price. However, Article 168 et seq. of the VAT Directive provides, in principle, no right of deduction for these transactions. According to case-law, it is irrelevant in such a situation that the input transactions serve an additional ‘ultimate’ aim that also entails taxed output transactions. ³⁰

51In the case at hand, however, the primary use is not for exempt chargeable transactions, but for use free of charge.

52The second case in which a direct and immediate link would be broken between the input transactions and the provision of chargeable services to visitors is if the primary use of the recreational path for use by visitors free of charge represented a non-economic activity of Sveda. This is because in the case-law there is no right of deduction for a taxable person’s expenditure in so far as it is linked to the exercise of non-economic activities. ³¹

53However, this is not the case here, according to the findings of the national court. ³² The mere fact that a service is provided free of charge does not form the basis — contrary to the Commission’s view — for a non-economic activity of a taxable person. In this respect the United Kingdom rightly referred at the hearing to the example of a shopping centre that provides customers with free parking.

c) Breach of the agreement with the Agency

54Moreover, even if including the costs involved in creating the recreational path in the pricing of the chargeable services that it is envisaged will be offered to visitors might be in breach of the agreement with the Agency, this would be irrelevant to the right of deduction. This point has been considered by the national court.

55However, such a breach cannot impinge on the VAT assessment nor, as indicated, ³³ is it relevant for the VAT deduction whether Sveda does in fact incorporate the costs in its pricing.

d) Infringement of Regulation (EC) No 1698/2005

56Nor, likewise, does Council Regulation (EC) No 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development, ³⁴ cited by the national court, have any bearing on the assessment of the present case in the light of VAT law.

57Even if use of the recreational path by Sveda were to be in breach of Article 36(b)(vii) of this Regulation, cited by the national court and on the basis of which support for ‘non-productive investments’ may be granted, this would not affect the right of deduction. According to well-established case-law, the principle of fiscal neutrality precludes a differentiation between lawful and unlawful transactions. ³⁵

e) Influence of the adjustment period

58The objection raised by the Republic of Lithuania relating to the provisions dealing with the adjustment of the input VAT deduction does not prevent the right of deduction in this case, either.

59Under Article 187 of the VAT Directive, the original deduction of input VAT when acquiring or manufacturing capital goods is adjusted if there are any variations of significance to the deduction entitlement within a period of five years.

60The Republic of Lithuania concludes from this that capital goods must be used for an economic activity within a period of five years of their acquisition or manufacture. Otherwise there would be no right of deduction.

61First, according to the case-law the adjustment period has no influence on the determination of whether a taxable person acts for the purposes of his economic activity at the time he acquires or manufactures the goods. ³⁶ Second, nor is it apparent in the present case that the capital goods are used within the adjustment period for purposes that would exclude the deduction of input VAT. Even if visitors to the recreational path are not initially offered any services that must be paid for, this alters nothing in the use of the capital goods for Sveda’s economic activity if it can be established, on the basis of objective circumstances, that such offers are still envisaged.

f) Amount of the deduction

62Finally, it must be examined whether the fact that the Agency has reimbursed Sveda up to 90% of the costs for the acquisition or manufacture of the capital goods at issue has a bearing on the amount of the deduction.

63The United Kingdom considers this aspect to be crucial in appraising the question of the extent to which the input transactions are incorporated in the price of the output transactions.

64Together with the Republic of Lithuania and the Commission, however, I take the view that the partial reimbursement of costs by the Agency has no effect on the amount of the deduction. What matters under Article 168 of the VAT Directive is solely whether the input transactions are used for taxed output transactions. How the input transactions are financed, conversely, has no bearing.

65Accordingly, the Court has previously ruled that legislation by a Member State under which the right to deduct VAT is limited to those cases in which the purchased goods are financed by means of a state subsidy is not compatible with the European Union’s VAT legislation. ³⁷

66A taxable person in the circumstances of the case in the main proceedings has, therefore, in principle a right to the full deduction of VAT paid on input transactions relating to the acquisition or manufacture of the capital goods at issue.

VI – Conclusion

Conclusion

67In the light of the foregoing I propose that the reply to the question referred should be:

Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that a taxable person has the right to deduct input VAT paid in producing or acquiring capital goods, which (i) are directly intended for use by members of the public free of charge, but which (ii) are used as a means of attracting visitors to a place where the taxable person, in carrying out his economic activities, plans to supply goods and/or services.

¹ Original language: German.

² OJ 2006 L 347, p. 1.

³ OJ 1977 L 145, p. 1.

⁴ See judgments in Lennartz (C‑97/90, EU:C:1991:315, paragraph 15); Bakcsi (C‑415/98, EU:C:2001:136, paragraph 29); Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraphs 57 and 58); and Klub (C‑153/11, EU:C:2012:163, paragraphs 39 and 40).

⁵ See my Opinion in X (C‑334/10, EU:C:2012:108, point 25 and the case-law cited therein).

⁶ See, to this effect, judgments in Bakcsi (C‑415/98, EU:C:2001:136, paragraphs 28 and 29), and Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraphs 56 to 59); see also Article 168a of the VAT Directive.

⁷ Judgments in Lennartz (C‑97/90, EU:C:1991:315, paragraph 21); Bakcsi (C‑415/98, EU:C:2001:136, paragraph 29); Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraph 58); and Klub (C‑153/11, EU:C:2012:163, paragraphs 39 and 40).

⁸ Judgments in Lennartz (C‑97/90, EU:C:1991:315, paragraph 14); Klub (C‑153/11, EU:C:2012:163, paragraph 44); and Gran Via Moineşti (C‑257/11, EU:C:2012:759, paragraph 25).

⁹ See, inter alia, judgments in Lennartz (C‑97/90, EU:C:1991:315, paragraph 15); X (C‑334/10, EU:C:2012:473, paragraph 17); and FIRIN (C‑107/13, EU:C:2014:151, paragraph 49).

¹⁰ See judgment in Klub (C‑153/11, EU:C:2012:163, paragraph 36); see also my Opinion in X (C‑334/10, EU:C:2012:108, No 81 and the case-law cited therein).

¹¹ See, to this effect, judgment in BCR Leasing IFN (C‑438/13, EU:C:2014:2093, paragraph 26); see also further judgments in Vereniging Noordelijke Land- en Tuinbouw Organisatie (C‑515/07, EU:C:2009:88, paragraph 38), and Gemeente ’s-Hertogenbosch (C‑92/13, EU:C:2014:2188, paragraph 25).

¹² See points 23 to 25 above.

¹³ Judgment in BLP Group (C‑4/94, EU:C:1995:107, paragraph 19); similarly the recent judgment in Portugal Telecom (C‑496/11, EU:C:2012:557, paragraph 38).

¹⁴ See, inter alia, judgments in Midland Bank (C‑98/98, EU:C:2000:300, paragraph 24); Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 79); and Malburg (C‑204/13, EU:C:2014:147, paragraph 34).

¹⁵ See, to this effect, inter alia, judgments in Midland Bank (C‑98/98, EU:C:2000:300, paragraphs 30 and 31); Investrand (C‑435/05, EU:C:2007:87, paragraph 24); SKF (C‑29/08, EU:C:2009:665, paragraphs 58 and 60); Becker (C‑104/12, EU:C:2013:99, paragraph 20); and Malburg (C‑204/13, EU:C:2014:147, paragraph 38).

¹⁶ See, inter alia, judgments in SKF (C‑29/08, EU:C:2009:665, paragraph 60); X (C‑651/11, EU:C:2013:346, paragraph 55); and PPG Holdings (C‑26/12, EU:C:2013:526, paragraph 23); see previously, to this effect, judgment in Kretztechnik (C‑465/03, EU:C:2005:320, paragraph 36).

¹⁷ See, in this regard, my Opinion in TETS Haskovo (C‑234/11, EU:C:2012:352, point 31 and the case-law cited therein).

¹⁸ See, in particular, judgment in Serebryannay vek (C‑283/12, EU:C:2013:599, paragraph 37 and the case-law cited therein).

¹⁹ See, inter alia, judgments in Tolsma (C‑16/93, EU:C:1994:80, paragraph 14); MKG-Kraftfahrzeuge-Factoring (C‑305/01, EU:C:2003:377, paragraph 47); and Le Rayon d’Or (C‑151/13, EU:C:2014:185, paragraph 29).

²⁰ See, inter alia, judgments in Tolsma (C‑16/93, EU:C:1994:80, paragraphs 13 to 20); and Fillibeck (C‑258/95, EU:C:1997:491, paragraphs 12 to 17); see also the Opinion of Advocate General Stix-Hackl in Bertelsmann (C‑380/99, EU:C:2001:129, point 32).

²¹ See, to this effect, judgment in Hotel Scandic Gåsabäck (C‑412/03, EU:C:2005:47, paragraph 22).

²² Judgment in Becker (C‑104/12, EU:C:2013:99, paragraphs 22, 23 and 33).

²³ See judgment in BLP Group (C‑4/94, EU:C:1995:107, paragraph 24).

²⁴ See point 38 above.

²⁵ See, inter alia, judgments in Rompelman (268/83, EU:C:1985:74, paragraph 19); Ghent Coal Terminal (C‑37/95, EU:C:1998:1, paragraph 15); Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 78); Securenta (C‑437/06, EU:C:2008:166, paragraph 25); and Idexx Laboratories Italia (C‑590/13, EU:C:2014:2429, paragraph 32).

²⁶ See, inter alia, judgments in Elida Gibbs (C‑317/94, EU:C:1996:400, paragraph 19); Pelzl and Others (C‑338/97, C‑344/97 and C‑390/97, EU:C:1999:285, paragraph 21); KÖGÁZ and Others (C‑283/06 and C‑312/06, EU:C:2007:598, paragraph 51); and Lebara (C‑520/10, EU:C:2012:264, paragraph 25).

²⁷ See judgment in AES-3C Maritza East 1 (C‑124/12, EU:C:2013:488, paragraph 31).

²⁸ See judgment in Becker (C‑104/12, EU:C:2013:99, paragraph 31).

²⁹ On the possibility of breaking this link, see judgment TETS Haskovo (C‑234/11, EU:C:2012:644, paragraph 34).

³⁰ See judgments in BLP Group (C‑4/94, EU:C:1995:107, paragraph 19); SKF (C‑29/08, EU:C:2009:665, paragraphs 62 and 71); and X (C‑651/11, EU:C:2013:346, paragraph 56).

³¹ Judgments in Securenta (C‑437/06, EU:C:2008:166, paragraph 30), and Vereniging Noordelijke Land- en Tuinbouw Organisatie (C‑515/07, EU:C:2009:88, paragraph 37).

³² See points 23 to 25 above.

³³ See points 42 to 45 above.

³⁴ OJ 2005 L 277, p. 1.

³⁵ See, in particular, judgments in Fischer (C‑283/95, EU:C:1998:276, paragraph 28); CPP (C‑349/96, EU:C:1999:93, paragraph 33); and GfBk (C‑275/11, EU:C:2013:141, paragraph 32).

³⁶ See judgment Lennartz (C‑97/90, EU:C:1991:315, paragraph 20).

³⁷ See judgment in Commission v France (C‑243/03, EU:C:2005:589, paragraph 33).