ECJ Resolution, of July 10, 2014, Leasing transactions, rule for determining the amount of the VAT deduction
This case relates to the calculation of the pro-rata to determine the amount of VAT deduction when performing transactions that generate the right of deduction together with transactions which not.
It is a financial entity that performs financial transactions that generate the right to deduct and some that do not, together with leasing of vehicles that generate the right to deduct and some that do not, having acquired for that specific goods and services for mixed use.
For assessment the VAT deduction of the mixed used goods and services, the taxpayer applied the method of the general pro-rata, by including in the numerator all sales and financial leasing operations that generated deductibility, and in the denominator all sales (financial and leasing). However, the tax authorities of Portugal, making use of the option provided in the VAT Law of Portugal, did apply a different method of calculation (in view of the fact that the calculation made by the company resulted in a significantly distorted amount of VAT deductible) by excluding from the numerator the part of the income received by the taxpayer related to the amortization of the cost of acquisition of vehicles for leasing.
In this regard, the Tax Administration considers that only the part of the leasing fee that corresponds to the interest due is the consideration of the leasing, so that the calculation for the deduction of expenses with mixed use cannot be benefited by the inclusion of an income that does not deal with these costs, being only intended for amortization of acquisition of vehicles.
The European Court confirms the right of the Portuguese Tax Administration for applying a new calculation, under the provisions of paragraph c) of Article 17.5 of the Sixth Directive, since, in principle, the use of goods and services with mixed use is more related to finance and contract management than to the acquisition of vehicles and, therefore, the interest is the only income that is counterpart of finance and contract management costs.
The Spanish VAT Law obliges to use the special method of pro-rata when “the total amount of deductible contributions in a calendar year by applying the general rule of pro-rata exceeds 20 per 100 from the amount by application of the rule of special pro-rata“