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Adjustment of deductions EU VAT case law

38 cases of the Court of Justice and the General Court of the European Union on this point of VAT law, from 2004 to 2024.

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Under each case, what the Court decided, from its summary. The summaries are AI-generated and are not official documents: open the case for the Court’s own text.

C-243/23 Drebers

Judgment · 12 September 2024 · Belgium

Adjustment period for major renovation and extension works

Works taxed as services are not themselves immovable property acquired as capital goods, but where a Member State has used the Article 190 option it must respect fiscal neutrality and the economic life of the effects of the services. Excluding significant extension or substantial renovation works whose effects last as long as a new building from the extended period is precluded. Whether Article 12(2) conversion occurred is irrelevant. Article 190, read with Article 187, has direct effect and can be invoked against the authorities.

C-429/23 NARE-BG

Judgment · 12 September 2024 · Bulgaria

Time limit for deducting pre-registration input VAT

Those provisions and principles do not preclude the refusal. A 12-month limitation period running from VAT registration is compatible. Direct taxes and VAT are fundamentally different in nature and not comparable for equivalence purposes, so extending direct tax deadlines only was permissible, and the state of emergency covered only part of the deduction window. The adjustment mechanism in Articles 184 and 185 cannot create a right of deduction that has already been lost by lapse of time, and neutrality does not override that. Confirms that pandemic-era relief for direct taxes gives no read-across to VAT deduction deadlines, and that a correcting return filed out of time cannot revive a forfeited deduction. Relevant to newly registered businesses, particularly property developers and others incurring substantial pre-registration input tax, which must claim within the domestic window.

C-127/22 Balgarska telekomunikatsionna kompania

Judgment · 4 May 2023 · Bulgaria

Adjustment of input VAT on goods written off, scrapped or destroyed

Sale of written-off goods as waste subject to VAT is no change in the deduction factors, even if waste sales are outside the taxpayer's usual activity and the value is reduced. Voluntary destruction is a change under Article 185(1), but falls within "destruction" under the first subparagraph of Article 185(2), so no adjustment, provided it is duly proved or confirmed and the goods had objectively lost all usefulness. Disposal counts where it causes irreversible disappearance. National rules requiring adjustment in those cases are precluded. Businesses scrapping obsolete or defective plant and stock can resist adjustment demands, whether the items are sold on as scrap or destroyed.

C-293/21 Vittamed technologijos

Judgment · 6 October 2022 · Lithuania

Adjustment of deductions on voluntary liquidation and deregistration

Adjustment is required because once the taxable person no longer has, and will never have, any intention of using the capital goods for taxable transactions, the close and direct link with taxed output transactions is broken. The reasons for liquidating, even if beyond the taxable person's control, are irrelevant, and the tax authorities are not to assess them. The Court distinguished the position where liquidation itself generates taxed transactions, for example asset sales to discharge debts, or where economic activity continues. Here the assets remained unsold. Confirms that the INZO and Ryanair line protects abandoned investment only where the taxable person still intends taxable use.

C-194/21 Staatssecretaris van Financiën (Time-barring of the right to deduct)

Judgment · 7 July 2022 · Netherlands

Adjustment cannot revive a time-barred right of deduction

Articles 184 and 185 do not preclude refusal. The adjustment mechanism presupposes an existing right of deduction and cannot itself create one. Where the right has been lost through expiry of a national limitation period, adjustment is unavailable, whether or not first use differs from intended use. Fiscal neutrality is a principle of interpretation only and yields to legal certainty. Absence of fraud, abuse or revenue loss does not permit circumvention of the limitation period. Confirms that Articles 184 to 186 are not a second window for deductions missed at the outset.

C-56/21 ARVI ir ko

Judgment · 30 June 2022 · Lithuania

Option to tax immovable property conditional on the buyer's VAT registration

Those provisions and principles preclude neither of the two national rules. Article 137(2) gives Member States wide discretion to set the detailed rules for, and restrict, the option to tax. A registration condition serves legal certainty and correct collection of VAT and does not affect the right to deduct, which without a valid option would not arise. The seller must therefore adjust. The purchaser's actual use of the property for taxed activities is irrelevant, but the authorities must still check for fraud or abuse by the seller. Confirms that formal conditions attached to the option to tax are not the same as formal conditions on the right to deduct: the Dobre line on VAT identification as a mere formality does not rescue a seller whose option fails. Relevant to property developers and vendors of second-hand commercial property in Member States with registration-based option regimes, notably Lithuania.

C-627/21 Administraţia Judeţeană a Finanţelor Publice Sibiu and Direcţia Generală Regională a Finanţelor Publice Braşov

Order · 2 May 2022 · Romania

Deregistration for inactivity cannot trigger an irrebuttable adjustment of input tax

The Court holds that those provisions preclude such rules and practice. An irrebuttable presumption that the capital goods have been used for purposes other than economic activity denies the taxable person any possibility of proving the contrary, and so goes beyond what is necessary to ensure the correct collection of the tax and to prevent evasion. One of a series of Romanian cases on the consequences of deregistration, alongside Promexor Trade and Siemens Gamesa.

C-182/20 Administraţia Judeţeană a Finanţelor Publice Suceava and Others

Judgment · 3 June 2021 · Romania

Automatic adjustment of deductions on entering insolvency

Articles 184 to 186 preclude national legislation or practice imposing automatic adjustment of pre-insolvency deductions where the initiation of the proceedings does not prevent the operator's economic activity, within the meaning of Article 9, from continuing, including for the purposes of liquidating the undertaking. Economic activity is objective and judged without regard to purpose or results. A change of purpose to realising assets does not of itself end it. Continued registration and output VAT charged on liquidation sales point to continuing activity. A later refund possibility does not cure the restriction. In Member States whose rules treat a liquidation declaration as ending taxable activity, a blanket clawback assessment on input tax recovered before the insolvency does not stand. Relevant to capital goods, stock and lease-related deductions alike.

C-248/20 Skellefteå Industrihus

Order · 18 May 2021 · Sweden

Abandoned property project and the option to tax

By reasoned order under Article 99, the Court held that those provisions preclude national legislation requiring immediate repayment of the whole input VAT plus interest merely because the project produced no taxed activity. The discretion under Article 137(2) cannot revoke a right of deduction already acquired. They do not, however, preclude national legislation imposing an obligation to adjust the input VAT deducted, since abandoning the intended taxed use breaks the direct link required by Articles 184 to 185.

C-787/18 Sögård Fastigheter

Judgment · 26 November 2020 · Sweden

Transfer of the capital goods adjustment obligation to the purchaser of a property

The Directive precludes such legislation. Where a Member State uses Article 188(2) to relieve the seller of adjustment because the purchaser will use the property only for deductible transactions, it cannot then impose adjustment of that deduction on the purchaser when the conditions cease to be met. The person liable for amounts due on adjustment is a substantive rule. Only the taxable person who applied the deduction can be required to repay it. The Article 19 question was inadmissible as hypothetical. Confirms and extends Pactor Vastgoed. Relevant to property investors and their advisers pricing acquisitions of opted properties, and to anyone assessed on a predecessor's deductions.

C-734/19 ITH Comercial Timişoara

Judgment · 12 November 2020 · Romania

Deduction on abandoned investment projects and the commission agent fiction

Deduction is retained where the projects were abandoned owing to circumstances beyond the taxable person's control, and no adjustment is required so long as the taxable person still intends to use the goods for taxed transactions. The tax authorities may not presume abuse or fraud. Awareness of a planning or profitability risk does not defeat the right. The commission agent fiction requires an agency agreement and identical onward supplies, including transfer of ownership, so it does not apply here. Useful for developers and their advisers facing clawback of VAT on aborted schemes.

C-791/18 Stichting Schoonzicht

Judgment · 17 September 2020 · Netherlands

Single-step adjustment of input tax on first use of capital goods

The Court held that Articles 184 to 187 do not preclude such a single-step adjustment. Article 187 governs only variations arising after first use, measured against the deduction entitlement for the year of first use. A discrepancy identified at the moment of first use falls under Articles 184 and 185, whose detailed rules Member States lay down under Article 186. The scheme must still allow spread adjustment for later variations, as the Netherlands rules did. The second question was not answered. Relevant to property developers and investors, and to anyone deducting input tax on capital goods on the basis of intended use.

C-374/19 Finanzamt Bad Neuenahr-Ahrweiler

Judgment · 9 July 2020 · Germany

Adjustment of deduction where taxed use of mixed-use capital goods ceases

The Court held that those provisions do not preclude an adjustment. Where taxed transactions cease but exempt transactions continue in the same premises, the premises are used from then on exclusively for exempt purposes, breaking the direct link with taxed output, and the reasoning in Imofloresmira (property left genuinely empty pending intended taxed use) does not apply. Adjustment is due even if the cessation was outside the taxable person's control. It would be otherwise if other taxed uses were found. That is for the national court to verify. Relevant to any operator of mixed-use immovable property within the adjustment period, notably care homes, hospitals, schools and other exempt providers with ancillary taxed catering or retail.

C-684/18 World Comm Trading Gfz

Judgment · 28 May 2020 · Romania

Adjustment of input tax following volume discounts

The Court recharacterised the questions as concerning Article 185. Where a discount obtained on domestic supplies means the initial deduction exceeded the entitlement, the national authorities must impose an adjustment. The absence of a separate credit invoice from the domestic supplier, and the fact that only a global invoice from the intra-Community supplier exists, does not release the taxable person from adjusting. Adjustment is also required even though the supplier has ceased trading in that Member State and cannot claim partial reimbursement of its output VAT. No such derogation appears in Article 185(2). Recipients of group-wide or pan-European rebates must apportion credits between domestic supplies and intra-Community acquisitions and adjust deduction accordingly, whatever the invoicing practice of the supplier. Relevant to distribution and electronics supply chains operating central rebate arrangements, and to anyone relying on symmetry.

C-661/18 CTT - Correios de Portugal

Judgment · 30 April 2020 · Portugal

Changing the input tax apportionment method after the final pro rata is fixed

A blanket national prohibition on changing the deduction method after the final proportion has been fixed is compatible with Article 173(2)(c). But Articles 184 to 186 preclude refusing correction where the Member State allows the actual use method, the taxable person was unaware and acting in good faith when choosing its method that a supply treated as exempt was taxable, the general national limitation period has not expired, and the change gives a more precise measure of deductible VAT. Mixed businesses whose output VAT treatment is retrospectively revised, whether by ruling, legislative change or liberalisation, can reopen the apportionment method itself and not merely recompute the turnover pro rata. Relevant to postal, financial, insurance, healthcare and public bodies sectors, and to anyone relying on an outdated binding ruling.

C-573/18 C and C (VAT and agricultural subsidies)

Judgment · 9 October 2019 · Germany

Subsidies from a producer organisation's operational fund as consideration

Payments made by the operational fund to the producer organisation for the supply of the capital goods to its members form part of the consideration and are subsidies directly linked to the price paid by a third party. The price to producers was reduced by exactly the amount coming from the fund, so a direct link existed. The fund has its own legal capacity and its assets may be used only for approved operational programmes. The remaining questions did not require an answer. A producer organisation in fruit and vegetables accounts for output VAT on the full acquisition cost of capital goods passed on to members, not merely on the part invoiced.

C-201/18 Mydibel

Judgment · 27 March 2019 · Belgium

Adjustment of input tax on a sale and lease back of buildings

Subject to the national court's verification of the facts and national law, no adjustment is required. Creating an emphyteutic right not subject to VAT is not in itself a change in the factors determining the deduction, and where the emphyteutic right and the leaseback are so closely linked as to form a single transaction, no supply of goods occurs because the institutions cannot dispose of the buildings as owner. Had adjustment been due, it would nevertheless respect neutrality and equal treatment. Relevant to businesses using sale and lease back of real estate as a financing tool, and to their lenders and lessors.

C-17/18 Mailat

Judgment · 19 December 2018 · Romania

Letting a fully equipped business as a transfer of a going concern

Not a transfer of a totality of assets. The items necessary to carry on the activity were merely let, with no transfer of related property rights, so the lessee could never dispose of them. Continuation under the same name is irrelevant. The contract is a single supply in which the letting of the immovable property is the principal element, the equipment and inventory being ancillary, and it therefore falls within the Article 135(1)(l) exemption. Landlords letting equipped commercial premises (restaurants, hotels, care and leisure operators) cannot rely on Article 19 to avoid adjusting input VAT recovered on works, fixtures and inventory.

C-140/17 Gmina Ryjewo

Judgment · 25 July 2018 · Poland

Adjustment of input tax where a public body changes the use of capital goods

Adjustment is not precluded, provided the national court finds on all the facts that the body acted as a taxable person when it acquired the goods. An express declaration of intended economic use is not required. Intention may be implied, and the concept of acquisition "as a taxable person" is to be construed generously. Relevant evidence includes the dual-use nature of the property and prior VAT registration. Waterschap Zeeuws Vlaanderen is distinguished because there the body acquired the goods acting as a public authority. Public bodies and other partly non-economic actors that failed to deduct on acquisition are not automatically shut out of capital goods adjustment when property is later put to taxable use.

C-364/17 Varna Holideis

Judgment · 27 June 2018 · Bulgaria

Jurisdiction over adjustment where the supply predates accession

The Court declined jurisdiction. Under Article 63 the chargeable event occurred and VAT became chargeable when the building was supplied in 2004, before accession, and the right of deduction under Articles 167 and 179 is directly linked in substance and time to that chargeability. The adjustment mechanism in Articles 184 to 186 is inextricably linked to that same chargeability and deduction. A post-accession event stemming from pre-accession circumstances does not confer jurisdiction. Confirms the boundary line for advisers in Member States that acceded in 2004 and 2007. Relevant to Bulgarian and Romanian real estate and long asset life cases, and to any adjustment, price reduction or nullity claim tracing back to a pre-accession transaction.

C-660/16 Kollroß and Wirtl

Judgment · 31 May 2018 · Germany

Input VAT on advance payments for goods never delivered

Deduction cannot be refused where the advance was paid and received and, at that time, all relevant information about the future supply was known to the buyer and the supply appeared certain. An unfixed delivery date does not create uncertainty. Deduction may be refused if objective evidence shows the buyer knew or should reasonably have known the supply was uncertain. Articles 185 and 186 do not preclude national rules making adjustment conditional on the supplier refunding the advance. Advance payment deductions are tested at the moment of payment, so later non delivery through supplier fraud or insolvency does not retrospectively destroy the right where the goods and price were identified. Relevant to plant and equipment purchasers, prepayment arrangements generally, and any adviser handling failed supplier claims.

C-532/16 SEB bankas

Judgment · 11 April 2018 · Lithuania

Adjustment of a deduction that was never available

Article 184 covers undue deductions generally, including where no right of deduction ever existed because the transaction was exempt. However, the capital goods mechanism in Articles 187 to 189 presupposes an existing right of deduction and a later change in the factors determining it, so it does not apply. Under Article 186 the Member States set the trigger date and the adjustment period, subject to legal certainty and legitimate expectations. A mandatory time limit starting from the vendor's unilateral credit note years later may breach legal certainty. Confirms that taxpayers cannot resist clawback of a deduction on an exempt supply by pointing to the five or twenty year capital goods spreading rules.

C-672/16 IMOFLORESMIRA - INVESTIMENTOS IMOBILIÁRIOS

Judgment · 28 February 2018 · Portugal

Adjustment of input tax on vacant property held for taxable letting

Those provisions preclude such legislation. Status as a taxable person and an accrued right of deduction cannot be withdrawn retroactively because, for reasons beyond the taxable person's control, the property was not actually used for taxed transactions. Vacancy after termination of a lease is not a change in the factors under Article 185 where the intention to let taxably persists and steps are taken to that end. The qualification is that authorities may still recover deductions retrospectively in cases of fraud or abuse. No limitation of temporal effects. Relevant to property investors and developers in Member States operating an option to tax, and to their advisers dealing with clawback rules keyed to periods of vacancy.

C-396/16 T-2

Judgment · 22 February 2018 · Slovenia

Adjustment of input tax after a court-approved arrangement with creditors

Final approval of an arrangement with creditors reduces the sums payable to suppliers and so is a change in the factors used to determine the amount deductible under Article 185(1). Where the reduction is definitive, so that the corresponding part of the suppliers' claims is irrecoverable, it is not a case of a transaction remaining unpaid, non-payment being characterised by uncertainty. Whether the reduction is definitive under national law is for the national court. Member States need not expressly legislate to require adjustment for non-payment. Omitting it from the list of exceptions suffices. A business emerging from a formal restructuring faces a clawback of input tax on the written-down element of its trade debts, mirroring the supplier's reduction of the taxable amount under Article 90.

C-186/15 Kreissparkasse Wiedenbrück

Judgment · 16 June 2016 · Germany

Rounding up the deductible proportion under a derogating method

Member States need not apply the rounding-up rule in Article 175(1) where the deductible proportion is calculated under a derogating method in Article 173(2). The point of those derogations is greater accuracy, so States may adopt their own or no rounding rule. On adjustment, the rounding-up rule must be applied only if it was in fact applied in determining the initial deduction. Continuity with Royal Bank of Scotland under the Sixth Directive confirmed. Confirms that businesses using a use-based or sectorised apportionment imposed or permitted by national law cannot import the Directive's round-up-to-the-next-whole-number rule where domestic law does not provide it.

C-229/15 Mateusiak

Judgment · 16 June 2016 · Poland

Taxation of business assets retained on cessation of activity

A Member State may treat the retained goods as a supply for consideration even after the adjustment period has expired. Article 18(c) imposes no time condition and does not cross-refer to the adjustment rules in Articles 184 to 192. It creates a new taxable transaction on cessation rather than a retroactive correction. Taxation therefore applies whatever the interval since acquisition, provided the goods still have a residual value at cessation, the taxable amount under Article 74 being the value determined at that time. Relevant to sole traders, professional practices and small companies in Member States that have implemented Article 18(c), and to advisers planning cessations, retirements and deregistrations.

C-332/14 Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft

Judgment · 9 June 2016 · Germany

Change of partial exemption method and adjustment of deductions on mixed-use buildings

Member States are not obliged to require prior direct attribution of construction, acquisition, use, conservation or maintenance costs where such attribution is difficult in practice. The residual amount may then be apportioned by turnover, or by floor area if that gives a more precise result (it need not be the most precise possible). Article 20 requires adjustment of earlier deductions when a departing allocation key is adopted during the adjustment period. Legal certainty and legitimate expectations do not preclude this, even absent express adjustment or transitional rules. Confirms that a mid-period change of partial exemption method triggers adjustment for capital goods, including immovable property, and that taxpayers cannot rely on prior acceptance of a turnover key, even one endorsed by a supreme court, or on the absence of transitional rules. Relevant to property developers and landlords with mixed taxable and exempt lettings, and to advisers on sectorised or floor-area methods.

C-500/13 Gmina Międzyzdroje

Order · 5 June 2014 · Poland

Ten-year capital goods adjustment period and the refusal of a one-off adjustment

By reasoned order, the Court held that those provisions and the neutrality principle do not preclude such rules. Article 187 applies where goods initially used for non-deductible purposes are later put to deductible use, and its terms are binding. An adjustment period of at least five years (extendable to twenty for immovable property) is an essential element of the system. A ten-year period running from first use is a proper transposition, and Article 187 precludes any one-off adjustment within a single tax year. Confirms that a change of use of immovable property from non-economic or exempt to taxable activity gives access to input VAT only in annual fractions over the national adjustment period, not as an immediate lump-sum credit.

C-107/13 FIRIN

Judgment · 13 March 2014 · Bulgaria

Adjustment of VAT deducted on a prepayment where the supply never happens

Deduction taken on a prepayment invoice must be adjusted where the supply is ultimately not made. That is a change in the factors determining the deduction under Article 185(1). It is irrelevant that the supplier remains liable under Article 203 and has not refunded the advance. The two traders need not be treated alike. Article 65 does not apply at all where the chargeable event was uncertain at the time of payment, for instance in fraud. Whether the taxpayer knew or should have known is for the national court. Relevant wherever advance payments are invoiced and deducted, notably commodity trading and construction.

C-424/12 Fatorie

Judgment · 6 February 2014 · Romania

Deduction where reverse charge VAT is wrongly paid to the supplier

The right to deduct may be refused in those circumstances. This was not merely a formal invoicing defect. By paying the VAT to the supplier instead of accounting for it to the tax authorities, the recipient breached a substantive condition of the reverse charge regime, and deduction is available only for tax actually due. The supplier's insolvency does not alter that. The recipient's remedy is a civil claim against the supplier under national law. Legal certainty does not preclude revocation of an earlier favourable decision and reassessment with default interest within the limitation period, subject to proportionality. Confirms the limit of the Bockemühl and Ecotrade line. Relevant to construction and other domestic reverse charge sectors, where the remedy for a recipient is correction of the invoice rather than payment of tax shown in error.

C-622/11 Pactor Vastgoed

Judgment · 10 October 2013 · Netherlands

Who bears the clawback on an adjusted deduction

The Directive precludes recovering sums due on adjustment of a deduction from anyone other than the taxable person who applied it. Designating the debtor is a substantive rule, not a procedural detail Member States may fix. Article 21 lists exhaustively when another person can be liable, and the joint and several liability option does not permit a separate liability. Neither Article 20(4) nor the Netherlands reverse charge derogation supports charging the purchaser for an acquisition to which it was extraneous. Relevant to property investors and developers, and to advisers on opted-to-tax land and building transfers, particularly in the Netherlands where the clawback provision was struck down.

C-78/12 Evita-K

Judgment · 18 July 2013 · Bulgaria

Proof of a supply of goods and formal ownership of livestock

The concept of a supply of goods, and the evidence that one actually took place, are independent of how ownership was acquired. The national court must assess all facts overall, and may look at prior and subsequent transactions and accompanying certificates. Authorities cannot require documents from the issuer showing ear tags. Article 242 does not import IAS 41. Article 226(6) does not require ear tags on invoices. Article 185(1) permits adjustment only where a right to deduct existed initially under Article 168(a). Useful to advisers dealing with livestock, agri-commodity and other fungible goods trades where tax authorities equate defective sector paperwork with a non-existent supply.

C-572/11 Menidzherski biznes reshenia

Order · 4 July 2013 · Bulgaria

No deduction on invoices for transactions that never took place, even if the issuer paid the tax

The Court holds that they do not preclude such a refusal. The right of deduction is linked to the actual carrying out of the supply, and it does not extend to tax which is due solely because it appears on an invoice under Article 203. That the issuer paid the tax, so that no loss of revenue arises, does not change the position. The referring court must make a global assessment of the facts. The order marks the boundary of the substance over form case law.

C-257/11 Gran Via Moineşti

Judgment · 29 November 2012 · Romania

Deduction on buildings acquired for demolition

The purchaser has the right to deduct the VAT on the buildings. The acquisition is a preparatory act in its property development activity, and the land continues to be used for taxed transactions, so replacing dilapidated structures with modern ones does not break the direct link. Demolition is not a change in the factors determining the deduction under Article 185(1), because it was intended from the outset. No adjustment is therefore due, absent fraud or abuse. Confirms for developers and their advisers that VAT on a demolition purchase (land plus existing buildings) is fully deductible where the intended taxed use of the site is evidenced objectively, here by the transferred demolition permit, the actual demolition works and the planning certificate.

C-234/11 TETS Haskovo

Judgment · 18 October 2012 · Bulgaria

Adjustment of deduction on demolition of buildings for modernisation

Article 185(1) does not require adjustment where buildings intended for energy production are destroyed and replaced by more modern buildings fulfilling the same purpose. Acquisition followed by demolition for modernisation is a series of linked transactions serving taxable output transactions, so the direct link with the taxable economic activity is unbroken. That applies all the more where destruction was only partial, new buildings were erected on the same land, and demolition waste was sold under VAT. The remaining questions, including on Article 185(2), were not answered. Useful for energy, utilities, industrial and property developers demolishing acquired buildings as part of a redevelopment or modernisation programme.

C-550/11 PIGI

Judgment · 4 October 2012 · Bulgaria

Adjustment of input tax on goods lost to theft

Article 185(2) does not preclude such rules. Theft removes the goods from use in taxable output transactions and so is in principle a change requiring adjustment. The exemption from adjustment in the first subparagraph is optional, and a Member State that has exercised the option may require adjustment in all cases of theft, irrespective of whether the circumstances are elucidated or the perpetrator identified or convicted. Member States may implement the option using equivalent wording, such as an established "shortfall", provided it reflects the Directive's objective. Force majeure was not at issue. Confirms that businesses cannot assume stolen stock leaves input tax untouched. Relevant to retail, wholesale, tobacco, drinks and any stock-holding business suffering shrinkage or unexplained shortfalls, and to advisers reviewing stocktake write-offs.

C-63/04 Centralan Property

Judgment · 15 December 2005 · United Kingdom

Capital goods adjustment where a building is disposed of by two linked supplies

Provided each transaction transfers the right to dispose of the property as owner under Article 5(1), a matter for the national court, both are supplies for Article 20(3) purposes, and the goods are treated for the rest of the adjustment period as used partly for taxable and partly for exempt activities in proportion to the respective values of the two transactions. The holding is confined to inextricably linked transactions, one exempt and one taxable. No need to consider abuse of rights. Apportionment by value applies on a capital goods disposal even though Article 20(3) contains no express apportionment mechanism and speaks of a single supply.

C-487/01 Gemeente Leusden and Holin Groep

Judgment · 29 April 2004 · Netherlands

Withdrawal of the option to tax property lettings and capital goods adjustments

Withdrawal of the option is permitted and may carry with it adjustment of deductions on let immovable property under Article 20(2), which is not an exhaustive list and covers legislative change. Adjustment may arise from circumstances outside the taxpayer's control. The Member State must, however, respect legitimate expectations in the implementing arrangements, though repeal of advantageous legislation is not in itself a breach. Article 5(7)(a) concerns application of goods for business purposes and cannot be used for such a legislative withdrawal. Landlords and developers who deducted input VAT on the basis of an opted-to-tax letting cannot resist adjustment merely because the option was removed by law rather than by their own choice. Relevant to property funds, local authority sports and leisure lettings, and sale-and-leaseback style structures relying on the option.

Related topics

Right of deduction · Origin and scope of right of deduction · Immovable property · Capital goods · Immovable property acquired as capital goods · Fiscal neutrality · Proportional deduction · Supply of goods · Rules governing exercise of the right of deduction · Harmonisation of fiscal legislation