ECJ’s decision of April 23rd, 2015. VAT taxable base for deemed supply of goods allocated as capital asset


The judgment clarifies how to assess the VAT tax base for a deemed supply of goods case, by allocating to the business a capital asset that was not initially considered as such.

In this case, an entity ordered the construction of an office building with the intention of selling it in the future, so it registered this as stocks instead of as capital asset. Within the cost of building it scored the interest on a loan requested for such purposes. The VAT paid on the purchase of goods and services for the building was deducted.

Later, the entity aimed part of the building for leasing, but it did not declare the VAT payable on the deemed supply of goods that the Belgian VAT Law does establish when allocating as capital asset the goods that the same company built or bought with a different aim than capital asset, and which VAT was deductible.

The company regularized the VAT but excluding the amount of loan’s interests, as he understood that they are not part of the VAT tax base in this case of deemed supply of goods, because they are not part of the cost of producing the goods. The local administration considered otherwise, raising the national Court a consultation to the ECJ in order to rule on whether the interests should be understood as part of the cost and, therefore, to be part of the taxable amount for VAT or not.

However, the EU Court clarifies that the controversial case refers to a deemed supply involving the allocation of capital assets, as set out in Article 5, paragraph 7, point b) of the Sixth VAT Directive, in which case the Article 11, part A, paragraph 1, letter b) of that Directive establishes as taxable base the purchase price of the goods or of similar goods, at the time that such allocation takes place.

Therefore, the VAT tax base of the property that the company had built and subsequently allocated as capital asset, does consist of the purchase price at the time of the allocation, of a property whose location, size and other essential characteristics are similar to property of the case, having no relevance that part of the purchase price of the property comes from interest payments.

A copy of the judgment C-16/14 is attached.

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ECJ VAT taxbase deemed supply allocation of capital assets

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