VATcodexEU VAT case law · Court of Justice and General Court

Proportional deduction EU VAT case law

18 cases of the Court of Justice and the General Court of the European Union on this point of VAT law, from 2008 to 2026.

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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-513/24 Oblastní nemocnice Kolín

Judgment · 19 March 2026 · Czechia

Regulatory equipment requirements and general costs

Such costs do not qualify as general costs on that basis alone. A statutory obligation to acquire goods or services is not in itself enough to establish a direct and immediate link with taxable output transactions or with the taxable person's economic activity as a whole. Only the objective relationship counts, though the obligation is one relevant circumstance. Each item must be assessed separately by reference to its actual use and, in particular, its intended allocation. Equipment allocated exclusively to exempt care gives no deduction. Equipment also serving taxable supplies gives a pro rata deduction. Hospitals, clinics, laboratories and other regulated operators with mixed exempt and taxable activity cannot claim a blanket residual deduction on licensing related infrastructure by pointing to the regulatory rulebook.

C-21/20 Balgarska natsionalna televizia

Judgment · 16 September 2021 · Bulgaria

Public broadcasting funded by State subsidy and the scope of deduction

The activity is not a supply for consideration. There is no legal relationship of reciprocal performance with viewers and no direct link between the services and the subsidy, which is set per programme hour regardless of viewership. Le Rayon d'Or is distinguished. The exemption question therefore falls away. Under Article 168, input VAT is deductible on purchases used for activities giving rise to deduction and not deductible on purchases used for out-of-scope activities. The method of financing is irrelevant. Member States set the apportionment method, respecting proportionality. Public broadcasters and comparable subsidy-funded bodies must treat free-to-air public service output as outside the scope of VAT, not exempt, and exclude it from the Articles 173 to 175 pro rata. Relevant to advisers to public bodies, cultural and media organisations and any taxable person with substantial grant funding alongside taxable supplies.

C-695/19 Rádio Popular

Judgment · 8 July 2021 · Portugal

Warranty extension commissions in the deductible proportion

Subject to national verification, the retailer is in direct contact with both insurer and insured and performs the essential functions of an insurance agent, so the commissions are exempt under Article 135(1)(a). Article 174(2) does not refer to point (a), and Article 135(1) clearly separates insurance from financial transactions. An insurance transaction therefore cannot be an incidental financial transaction, whether or not it is incidental. Fiscal neutrality cannot widen an exemption or derogation absent clear wording. Retailers, motor dealers and other suppliers earning insurance commissions on extended warranties, payment protection or similar cover must include that exempt turnover in the denominator of their partial exemption fraction.

C-573/20 Casa di Cura Città di Parma

Order · 14 April 2021 · Italy

Italian health provider could not deduct input tax attributable to exempt care

The Court holds that it does not preclude such legislation. Deduction is available only in so far as the inputs are used for taxed transactions, so tax attributable to exempt supplies is not recoverable, and including those supplies in the denominator of the deductible proportion is what the directive itself provides. The second to fourth questions were held manifestly inadmissible. Decided on the same day and to the same effect as Debiasi, this order confirms that the exempt status of healthcare carries its familiar cost.

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-165/17 Morgan Stanley & Co International

Judgment · 24 January 2019 · France

Deductible proportion of a branch serving its foreign principal establishment

Branch and principal establishment are one taxable person, so internal flows are disregarded. For expenditure used exclusively for the principal establishment's transactions, the fraction's denominator is the turnover of those transactions alone. The numerator only its taxed transactions which would also give a right to deduct in the branch's Member State, including where deduction arises from an option exercised there. For the branch's general costs, the denominator covers the transactions of both establishments, the numerator the branch's taxed transactions plus those of the principal establishment meeting the same double test. Directly relevant to banks, insurers and other partly exempt groups operating through cross-border branches, and to anyone computing branch recovery rates.

C-153/17 Volkswagen Financial Services (UK)

Judgment · 18 October 2018 · United Kingdom

Residual input tax on vehicle hire purchase, apportionment method

General costs actually incurred, at least in part, for the taxable vehicle supplies are cost components of those supplies for VAT purposes, even though the taxable person passed them on only in the exempt interest. The commercial result is irrelevant. A special method which disregards an actual and non-negligible allocation of overheads to taxable supplies cannot be more precise than the turnover key and is therefore not permitted. Banco Mais is confined to its own circumstances. Relevant to lessors, hire purchase providers and captive finance companies with agreed special methods, and to tax authorities imposing use based apportionment.

C-378/15 Mercedes Benz Italia

Judgment · 14 December 2016 · Italy

Turnover-based deductible proportion applied to all acquisitions, and identifying incidental financial transactions

The derogation in point (d) necessarily involves a turnover-based proportion, and it covers all goods and services used by the taxable person for taxed and exempt transactions, not only mixed-use inputs. Otherwise it would duplicate the general rule. Member States may therefore impose the single turnover key on all acquisitions. Turnover composition is a relevant factor for identifying incidental transactions, but only if the assessment also considers the link with the taxable activities and the use of VAT-taxed goods and services. Confirms that Italy's blanket pro rata is compatible with EU law, so taxable persons there cannot demand an actual-use apportionment for inputs wholly attributable to taxed activities. Relevant to groups with in-house financing or treasury functions, particularly captive finance and holding structures in Member States using the point (d) derogation.

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-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-108/14 Larentia + Minerva and Marenave Schiffahrt

Judgment · 16 July 2015 · Germany

Holding company input tax and the scope of VAT grouping

Where the holding company involves itself in the management of the subsidiaries, the acquisition costs are general overheads and VAT is in principle fully deductible, subject to Article 17(5) if there are exempt outputs. Where it manages only some subsidiaries, deduction is proportionate, on apportionment criteria set by Member States. Restricting grouping to subordinated legal persons is precluded unless necessary and appropriate to counter abuse or evasion, a matter for the national court. Article 4(4) has no direct effect. Confirms full deduction for genuine management holding companies, including on share issue and financing costs, and confines partial restriction to cases where some shareholdings are purely passive. Relevant to shipping, private equity and group holding structures.

C-183/13 Banco Mais

Judgment · 10 July 2014 · Portugal

Turnover-based deduction proportion for motor vehicle leasing

It does not preclude it. Member States exercising the use-based option may impose a method other than turnover, provided it determines the deductible proportion more precisely and objectively reflects the actual share of expenditure attributable to taxed transactions. Restricting the fraction to the interest element is permissible where the mixed use goods and services are used primarily because of the financing and management of the leasing contracts rather than the provision of the vehicles, which the national court must verify. Relevant to banks, captive finance houses and leasing companies with mixed taxable and exempt activity, and to their advisers.

C-388/11 Le Crédit Lyonnais

Judgment · 12 September 2013 · France

Foreign branch turnover in the partial exemption fraction

No on all three points. The deduction system rests on the territoriality of the applicable national rules. A taxable person is subject to as many deduction regimes as there are Member States in which it has fixed establishments, so turnover of EU branches cannot enter the head office's proportion. Nor can turnover of third country branches, whose supplies to non-EU customers are not treated as made by the principal establishment. "Sectors of business" means types of economic activity, not geographic areas, so no national option can permit it. Removes the FCE Bank single entity argument as a route to improving head office recovery.

C-560/11 Debiasi

Order · 13 December 2012 · Italy

Input tax on exempt medical activities is not deductible and enters the pro rata

The Court holds that those provisions do not preclude such legislation. Denying deduction for inputs used in exempt transactions is the ordinary consequence of the system, since deduction is available only in so far as goods and services are used for taxed transactions, and including exempt supplies in the denominator of the fraction is exactly what Article 19 prescribes. A confirmation of orthodoxy rather than a development.

C-511/10 BLC Baumarkt

Judgment · 8 November 2012 · Germany

Floor area rather than turnover as the partial exemption method for a mixed-use building

It does, but only for a given transaction and only on condition that the alternative method (here, floor area) guarantees a more precise determination of the deductible proportion than the turnover method. A general derogation from the turnover rule across the board would be contrary to the Directive. Member States must respect fiscal neutrality and proportionality, and the national court must verify that the precision condition is met. Relevant to property developers and landlords with mixed taxable and exempt lettings, and to anyone advising on special methods.

C-377/11 International Bingo Technology

Judgment · 19 July 2012 · Spain

Statutory prize element of bingo card price and the deduction fraction

The taxable amount does not include the portion of the card price fixed in advance by legislation and destined for winnings. The organiser cannot freely dispose of it and it is not consideration for its service. Consequently Member States may not include that amount in the denominator of the Article 19(1) fraction. The Glawe reasoning applies because the payout percentage is mandatory and predetermined. Where the organiser has free use of all sums received (Town and County Factors) it does not. For a gaming operator with mixed taxed and exempt activities, statutory minimum payouts come out of both the taxable amount and the denominator of the partial exemption fraction.

C-25/11 Varzim Sol

Judgment · 16 February 2012 · Portugal

Untaxed subsidies cannot be forced into the pro rata for a wholly taxable sector

The Court holds that those provisions preclude it. Where a Member State allows deduction based on use, the sector in which only taxable transactions are carried out gives a full right of deduction, and untaxed subsidies cannot be brought into the denominator of a fraction for that sector. Doing so would restrict a right of deduction that the directive intends to be complete. The judgment protects the integrity of the use based method in Article 173(2).

C-488/07 Royal Bank of Scotland

Judgment · 18 December 2008 · United Kingdom

Rounding of the deductible proportion under special partial exemption methods

Member States are not obliged to apply the rounding rule in the second subparagraph of Article 19(1) where the deductible proportion is calculated under one of the special methods in the third subparagraph of Article 17(5), points (a) to (d). Article 19 sets out a detailed calculation rule only for the standard turnover based proportion. Member States may adopt their own rounding rules, provided they respect the principles underlying the common VAT system. The second question did not require an answer. Confirms that a special or sectoral partial exemption method can carry its own rounding convention, including rounding to decimal places rather than to the next whole percentage point. Relevant to banks, insurers and other partly exempt businesses negotiating special methods, and to tax authorities approving them.

Related topics

Right of deduction · Origin and scope of right of deduction · Adjustment of deductions · Supply of services · Economic activity · Other exemptions · Insurance transactions · Exemptions · Limitation period · Supply of goods