LexGo

Decision of the Court of Cassation on the deductibility of VAT incurred on general expenses
04/05/2022

In a recent decision, the Luxembourg Supreme Court (Cour de cassation) rejected an appeal (pourvoi en cassation) lodged by Luxembourg VAT authorities (Administration de l’enregistrement, des domaines et de la TVA, “AEDT”) against a decision of the Court of Appeal (Cour d’appel).

The case involved a group of companies active in the real estate sector. Among the group companies, a Luxembourg company (“LuxCo”) was performing activities both within and outside the scope of VAT. In the course of its activities, LuxCo acquired services from an associated company established in France. These services were invoiced as a whole to LuxCo. Since it was not possible to identify any direct link between the acquired services and a specific activity of LuxCo, said services were treated/classified as general expenses incurred by LuxCo. Luxembourg VAT was applied on the services rendered by the French company under the reverse charge system .Following the acquisition of the services, LuxCo re-invoiced them to other companies of the group. As there was a large disproportion between the self-assessed input VAT and the output VAT collected, LuxCo claimed a refund of the excess input VAT.

As regards the deductibility of VAT paid on general expenses, while the AEDT did not contest that VAT on general expenses is in principle deductible, the deductibility of VAT paid on general expenses is, according to the AEDT, only possible to the extent that the general expenses are actually fully incorporated in the price of the output transactions. In the case at hand, as the value of the services acquired exceeded the value of the services re-invoiced, the total amount of the general expenses was considered by the authorities as not incorporated in the price of the output operations. As a result, the AEDT limited the deductibility of the input VAT paid to the VAT paid on the costs actually re-invoiced.

In its judgment, the Court of Appeal recalled the case law of the Court of Justice of the European Union according to which the general expenses are presumed to relate directly and immediately to the economic activity carried out by a VAT taxable person, falling within the scope of VAT. Furthermore, it recalled that the economic result realised by the VAT taxable person is not a condition for deductibility and that deductibility must even exist if the economic activity for which the costs were incurred is never realised. Finally, the Court of Appeal refers to an expert opinion on the link between input costs and output revenues produced by LuxCo to reject the arguments of the AEDT. In the appeal in cassation, the Court of Cassation confirms the judgment of the Court of Appeal, which gave sufficient reasons for its decision, and rejects any request for a preliminary ruling to the CJEU.

Related : BSP

[+ http://www.bsp.lu]


All articles VAT

Lastest articles VAT

Disproportion between costs and income does not prevent input VAT recovery
28/04/2022

The Luxembourg Court of Cassation had the opportunity to adjudicate at last instance on a condition for the right to deduc...

Disproportion between costs and income does not prevent input VAT recovery Read more

EU Finance Ministers agree on update of VAT rates
20/12/2021

On 7 December, the EU finance ministers (unanimously) agreed to update the current rules governing VAT rates for goods and...

EU Finance Ministers agree on update of VAT rates Read more

VAT deduction right of Lux PropCos owning/exploiting German real estate – VAT changes
08/09/2021

In its decision C-931/19 (“Titanium case”), the Court of Justice of the European Union (“CJEU”) ru...

VAT deduction right of Lux PropCos owning/exploiting German real estate – VAT changes Read more

VAT e-commerce package for B2C transactions
06/07/2021

A VAT e-commerce package for business-to-consumer (B2C) transactions came into force as from 1 July 2021.

VAT e-commerce package for B2C transactions Read more

LexGO Network