The right to deduct the VAT not depends on of the destination given to the goods or services by the purchaser. Judgment of the European Court of Justice of June 22nd, 2016


In the main proceedings it is questioned to the Court of Justice of the European Union about the right to VAT deduction by a taxable person in the acquisition of goods that are transmitted and which are subsequently partly used by the buyer in an economic activity.

In the present case, a municipality ordered the construction of two buildings for multiple purposes, deducting the full VAT borne in the construction of the building. Once completed, the municipality sold the buildings to a Foundation, where the first of them was subject to property transfer tax and the second to VAT. In both cases the selling price was much lower than the cost of construction thereof. Subsequently, the Foundation assigned for free a part of the buildings to three schools and leased for a consideration the rest to other recipients, with exemption from VAT.

The Amsterdam Court of Appeal considered that the sale price corresponded exclusively to parts of the buildings that the Foundation leased subject to VAT, so that the municipality acted as entrepreneur or professional only with respect to those parties of the buildings and, therefore, it has right to deduct the VAT on the corresponding percentage. However, it wonders ex officio and raises the question to the European Court of Justice, if the municipality has the right to deduct all the VAT borne by the construction of the buildings or only a part in proportion to the parts of the buildings which the buyer used for economic activities.

In this regard, the ECJ emphasizes the fundamental principle of VAT which assumes the right to the deduction of the tax by the taxpayer and that, in principle, cannot be limited, being extended to all the input VAT quotas. In this way, reminds the Court that, according to its own Case-Law, VAT applies to each transaction of production or distribution after deduction of the VAT which has levied the costs of the constituent elements of the price, so each transaction must be treated independently, regardless of the VAT due on the preceding or following transactions.

In terms of the requirements for the deduction, these are two: that the goods or services are used for the needs of their economic activity subject to VAT, and that these goods or services have been delivered or provided by another taxable person. Therefore, there is no requirement in relation to the use of the goods by the recipient who subsequently acquires the goods, given that, implicitly, that would mean denying the right to the deduction in all those cases in which the goods or services are delivered to a consumer that does not perform an economic activity. In conclusion, as it has already declared the Court, the result of the economic transaction has no relevance to the right to deduction, provided that the activity is subject to VAT.

A copy of the judgment is attached with case number C-267/15.

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ECJ 267_15

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