1 / 41

3 August 2016 Dr. Friederike Grube Justice at the Federal Tax Court of Germany

The principle of neutrality and the right to deduct Input VAT in the jurisdiction of the European Court of Justice and the Federal Tax Court of Germany. 3 August 2016 Dr. Friederike Grube Justice at the Federal Tax Court of Germany. Topic Overview. Introduction

tocho
Download Presentation

3 August 2016 Dr. Friederike Grube Justice at the Federal Tax Court of Germany

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The principleofneutralityandtherighttodeduct Input VAT in thejurisdictionofthe European Court of Justice andthe Federal Tax Court of Germany 3 August 2016 Dr. Friederike Grube Justice at the Federal Tax Court of Germany

  2. Topic Overview • Introduction • First rulingofthe ECJ concerningtheprincipleofneutrality: Case Rompelman • Further developmentoftheprincipleofneutrality in connectionwiththerighttodeduct Input-VAT: Case INZO, Case GhentCoal, Case Fini H. • New Developments : Case PolskiTrawertyn, Case Malburg, Case Sweda • Jurisdictionofthe Supreme Tax Court (Bundesfinanzhof)

  3. Introduction • Art. 113 ofthe European Treaty of Lissabon: Harmonizationoflegislationconcerning VAT in the European Union – Principleofunanimity • VAT-Directive 1. 01. 2007 (morethan 400 articles) • Provisionsof VAT-Directivehavetobeimplemented in the national VAT-Law ofeach Member State ofthe European Union • Art. 267 European Treaty of Lissabon: Reference ofpreliminaryrulingstothe European Court of Justice (Luxembourg)

  4. TwoaspectsofthePrincipleofneutrality in VAT-Law • The principleofneutrality in VAT-Law isequivalenttotheprincipleofequaltreatment • The principleofneutralityisconnectedwiththerightoftaxablepersonstodeduct Input-VAT • Article 168 ofthe VAT-Directiverules: „In so farasgoodsandservicesareusedforthepurposesofthetaxedtransactionsof a taxableperson…isentitledtodeduct Input-VAT…“

  5. The righttodeduct Input-VATin a MS ofthe European Union Output-VAT/Input-VAT Output-VAT T-------------------A---------------PrivateP • TaxablepersonT hastherighttodeduct Input-VAT andhastopay VAT forhisoutput-supply • TaxablepersonA hastherighttodeduct Input-VAT andhastopay VAT forhisoutput-supply • Private personPhastopay VAT as a final consumerandhasnorighttodeduct Input-VAT

  6. Judgmentofthe ECJ 14 February 1985Case C-263/83 Rompelman • Facts ofthecase V--->--->-->-- R--->---->----TP • R acquiredthefuture title to 2 units in premisesunderconstruction (showrooms) • Rintendedtolettheshowroomstotraders • Rclaimed a refundof Input-VAT beforethepremises in questionhadbeenlet • The inspectoroftaxesrejectedtheclaimbecausetheactualexploitationofthepurchaseshad not yetcommenced…

  7. Judgmentofthe ECJ 14 February 1985Case C-263/83 Rompelman II. Decisionofthe ECJ • The taxablepersonisallowed do deduct Input-VAT in so farasthegoodsandservices on whichthetax was paidareusedforhistaxedtransactions (Art. 17 Sixth Council Directive – now Art. 168 VAT-Directive) • Accordingtotheprincipleofneutralitythisprovisionapplieswithoutdistinctiontothe VAT paidbeforeor after commencingtheoutputsuppliesofgoodsorservices • R isentitledtodeduct Input-VAT • MS havethepossibilitiesofimposingcertainobligations in ordertopreventabusesandtoensurethatthedeductionis limited tothe real costsconnectedtothebusinessactivity

  8. Judgmentofthe ECJ 29 February 1996Case C-110/94 INZO I. Facts ofthecase INZO was founded in 1974 todevelopprocessesforthetreatmentofseawaterand turn itintodrinkingwater. Tothat end INZ0acquiredgoodsandcommissioned a study on theprofitabilityof a projectfortheconstruction. The studyoftheprojectidentifiednumerousproblemsandsomeoftheinvestorswithdrew. In 1988 theproject was abandonedandINZO was putintoliquidation. The taxauthorityrealizedthatINZOhad not carried out anytaxabletransaction. Itthereforeclaimedrepaymentofthe VAT recoveredbyINZObetween 1978 and 1982. INZOcontestedthatclaim.

  9. Judgmentofthe ECJ 29 February 1996Case C-110/94 INZO II. Decisionofthe ECJ Althoughthewordingof Art. 168 VAT Directivedoes not allowthedeductionsincethe Input-VAT could not beconnectedwithanyoutput VAT-taxedsuppliesthe ECJ decidedthat – accordingtotheprincipleofneutrality - in a situation such asthatofINZOthe Input-VAT couldbededucted – providedthatthere was nofraudorabusebythepersonorentityexercisingtherightofdeduction….

  10. Judgmentofthe Financial Court of Berlin25 April 1996 - I 37/94 - A taxableperson, whohadtriedtorun a restaurant on a ship in Berlin on theriver Spree isentitledtodeduct Input-VAT although he nevercarried out anyoutput VAT-taxedsuppliesofservicesbecause he hadneverobtainedtheapprovaltousetheship on theriver Spree which was not the fault ofthetaxableperson in question.

  11. Judgmentofthe ECJ 15 January 1998Case C-37/95 GhentCoal Terminal I. Facts ofthecase In 1980 GhentCoalpurchasedland in theharbourareaofGhentandcarried out investmentworkanddeductedthe Input-VAT. On 1 March 1982 GhentCoalhadtoexchangetheland in questionforotherlandsituatedelsewhere in theGhentharbourarea. ThereforeGhentCoalneverusedtheland in respectofwhichithadcarried out theinvestmentworkgivingrisetothededuction. In 1984 thetaxauthoritiessoughtrepaymentofthe VAT…

  12. Judgmentofthe ECJ 15 January 1998Case C-37/95 GhentCoal Terminal II. DecisionoftheECJ Although a literalapplication of Article 168 of the VAT-DirectivewouldhavelettodenyingGhentCoaltherighttodeduct, becausetheworks in questionwereneverusedforthepurposes of VAT-taxedtransactionsthe ECJ deviatedfromtheliteralinterpretation of Article 168 of the VAT-DirectiveanddecidedthatGhentCoalwas entitledtodeduct Input-VAT accordingtotheprinciple of neutrality

  13. Judgmentofthe ECJ 3 March 2005Case C-32/03 Fini H. I. Facts ofthecase Fini H. was created in 1989 withtheobjectofrunning a restaurant. Thereforeitleasedpremisesfrom 20 May 1988. The lease, which was concludedfor a termof 10 years, couldbeterminatedonlywitheffectfrom 30 September 1998. Fini H.closedtherestaurant at the end of 1993 andthepremisessubsequentlyremainedunused. The landlordrefusedtoconsenttoterminatethe lease. Fini H.continuedtodeduct Input-VAT withoutdeclarationofany Output VAT. The taxauthoritydemandedrepaymentofthe sums paidtoFini H. whodid not acceptthis....

  14. Judgmentofthe ECJ 3 March 2005Case C-32/03 Fini H. II. Decisionofthe ECJ Referringagaintotheprincipleofneutralityandrelying on precedents such asINZOthe ECJ heldthattheprincipleofneutralityalloweddeduction in thiscase – providedofcoursethatthere was nofraudorabuseinvolved…

  15. New developments: Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn I. Facts ofthecase On 26 Dec. 2006 a courtofficialissued an invoicetothepartnersfortheacquisitionofimmovableproperty. On 26 Apr. 2007 thepartnersfoundedPolskiTrawertyn. The same day a notaryissued an invoicetothepartnershipfordrawingup a notarialact. In relationofthefirstinvoicethetaxofficestatedthatPolskiTrawertyndid not havetherighttodeduct Input-VAT sinceshe was not theacquireroftheimmovableproperty. As regardsthesecondinvoicethetaxofficedeniedtherighttodeduct Input-VAT, becausetheinvoicehadbeenissuedbeforePolskiTrawertyn was registered in thecompaniesregister – sincetheregistration was effectedthe 5 June 2007, theinvoiceof 26 Apr. 2007 was issuedto a non-existent entity….

  16. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn II. Questionsreferredtothe ECJ bythe Court ofPoland • Is an entity, in thepersons of futurepartners, whicheffectsinvestmentexpenditurebefore formal registration of thepartnership…, entitled, followingregistration of thepartnershipas an entity… to..deduct Input-VAT incurred in connectionwithinvestmentecpenditurewhichisusedfortaxableactivitiescarried out withintheframework of thepartnership? • Does an invoice..which was issuedtothepartnersand not tothepartnership, preclude…therighttodeduct Input-VAT….?

  17. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn III. Considerationsofthe ECJ regardingthe 1 question • The partnersthemselvesare not entitledtodeductthe Input-VAT in questionbecausethecontributionofthecapitalgoods at issueis an exempttransaction • Accordingtothecase-law (Rompelmann, INZO)preparatoryacts must betreatedasconstitutingeconomicactivity • The principleofneutralityrequiresthatthefirstinvestmentexpenditure must beregardedas an economicactivity • Anyonewhocarries out such investmenttransactions must beregardedas a taxableperson • Accordinglythepartnersmaybeconsideredastaxablepersonsfor.. VAT and in principleentitledtodeduct Input-VAT

  18. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn III. ConsiderationsoftheECJ regardingthe 1 question • The factthatthecontributionof an immovablepropertyto a partnershipbyitspartnersisexemptedof VAT cannothavetheconsequenceofburdeningthemwiththecostof VAT in thecontextoftheireconomicactivity • The Court hasheldthat – in applyingtheprincipleofneutralityof VAT, a taxablepersonwhosesoleobjectistopreparetheeconomicactivityofanothertaxablepersonandwhohas not effectedanytaxabletransactionhas a right do deduct Input-VAT in relationtotaxabletransactionscarried out bytheothertaxableperson (Faxworld)

  19. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn III. ConsiderationsoftheECJ regardingthe 1 question • Sinceitis not possibleforthepartnerstodeduct Input-VAT accordingtothe national VAT-Law thepartnershipmust beentitledtotakeaccount of thoseinvestmenttransactionswhendeducting Input-VAT inordertoensuretheprinciple of neutrality • On theotherhandthetaxauthoritieswouldbeentitledtodemandrepaymentoftheamountsdeductediftherighttodeducthadbeenexercisedfraudulentlyorabusively

  20. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn IV. Answertothe 1 question ..Art. 9, 168 and 169 of the VAT-Directive must beinterpretedasprecluding national legislation wich permitsneitherpartnersnortheirpartnershiptoexercisetherighttodeduct Input-VAT on theinvestmentcostsincurredbythosepartners, beforethecreationandregistration of thepartnership, forthepurposes of andwiththeviewtoitseconomicactivity

  21. Judgmentofthe ECJ 1 March 2012Case C-280/10 PolskiTrawertyn V. Answertothe2 question …Articles 168 and 178a of the VAT-Directive must beinterpretedasprecluding national legislationunderwhich, in circumstances such asthose at issue in themainproceedings, Input-VAT paidcannotbedeductedby a partnershipwhentheinvoice, drawnupbeforeregistrationandidentification of thepartnershipfor VAT purposes, was issued in thename of thepartners of thatpartnership.

  22. Judgmentofthe Federal Tax Court6 September 2007 V R 16/06 • A partnershipisentitledtodeduct Input-VAT ifitcarries out VAT-taxedtransactionsorhastheintentionto do so • A singlepartnerof a partnershipmayexercisetherighttodeduct Input-VAT in relationtothecommonpropertyofthepartnershipif he usesthispropertyforeconomicacitivityorhastheintentionto do so • The singlepartnerof a partnershipis not entitledtodeduct Input-VAT in relationtotheeconomicactivityof a futurepartnership…. • Personal remark: This judgmentis not in accordancewiththejudgmentofthe ECJ PolskiTrawertyn…

  23. Judgmentofthe ECJ 13 March 2014Case C-204/13, Malburg I. Facts ofthecase Upto 31 December 1994 Mr. Malburgheld a 60 % share in thepartnershipMalburg & Malburg – „oldpartnership“ – whiletheother 2 partnerseachheld 20 % shares. The oldpartnership was dissolved on 31 December 1994 with a portionoftheclientbasebeingtransferredtoeachofthepartners. Witheffectfrom 1 january 1995 the 2 otherpartnerseachoperatedseparatelyasindependenttaxadvisors. On 31 December 1994 Mr Malburgfounded a newpartnership in which he held a 95 % share (the „newpartnership“). Mr Malburgmadeavailabletheclientbasefreeofchargetothenewpartnershipforuse in itsbusiness.

  24. Judgmentofthe ECJ 13 March 2014Case C-204/13, Malburg I. Facts ofthecase The taxofficeassessedtheoldpartnershipasliableforpaymentof VAT for 1994 based on thetransferoftheclientbase. The tax due was paid. The oldpartnershipissued an invoicedated 16 august 2004 andaddressedto Mr. Malburgtheamount of 1, 5 million € forthedivision of assets on 31 December 1994 includinga separate itemisationfor VAT. Mr Malburgdeducted Input-VAT whichhadbeeninvoicedtohim in respectoftheacquisitionoftheclientbase. The taxauthoritiesrefusedthat VAT deduction.

  25. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg II. Questionreferredtothe ECJ: Havingregardtotheprinciple of neutrality, must …Article 168 of the VAT-Directiveinterpretedasmeaningthat a partner in a partnership of taxadvisorswhoacquiresfromthepartnership a clientbaseforthesolepurpose of transferitdirectlythereafterandfree of chargeto a newlyfoundedpartnership, in which he istheprincipalpartner, forittouse such clientbases in itsbusiness, maybeentitledtodeductthe Input-Taxpaid on theacquisition of theclientbase?

  26. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg III. Considerations of the ECJ • The situation in thecasePolskiTrawertynwas unique • The existence of a directand immediate link between a particular Input-Transaction and a particular Output-Tansactionortransactionsgivingrisetoentitlementtodeductis in principlenecessarybefore a taxablepersonisentitledtodeduct Input-VAT

  27. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg III. Considerations of the ECJ • In thecasePolskiTrawertyntheoutput-transaction fellwithinthescope of VAT, but constituted a transactionexemptfrom VAT • In thecaseMalburgtheprovision of theclientbaseforusebythenewpartnershipfree of chargedoes not fall withinthescope of VAT, becausethiscannotbeconsideredas an economicactivity • Consequentlythereis not a directand immediate link between an Input – and Output-transaction

  28. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg III. Considerations of the ECJ • Althoughthis immediate link ismissing, theremightbe a righttodeduct Input-VAT, wherethecosts of theservices in questionarepart of thegeneralcosts of thetaxablepersonandare, as such, components of theprize of thegoodsorservices he supplies…. • ThatmightbethecaseifMr. Malburghadacquiredtheclientbase at issue in thecourse of hisactivityas a managingdirector…but thereferring Court hadexcludedthatpossibilityfromhisreasoning…

  29. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg III. Considerations of the ECJ • The principle of neutralitydoes not applyto a situation such asthat at issue in thecaseMalburgwheretheprovision of theclientbasefortheuse of a partnershipfree of chargeis not a transactionfallingwithinthescope of VAT • Moreovertheprinciple of neutralityis not a rule of primarylaw but a principle of interpretationtobeappliedconcurrentlywiththeprinciple on whichitis a limitation

  30. Judgment of the ECJ 13 March 2014Case C-204/13, Malburg IV. Answertothequestion ..Art. 168 VAT-Directive must beinterpretedasmeaningthat a partner in a partnership of taxadvisorswhoacquires…..a clientbaseforthesolepurpose of makingthatclientbaseavailabledirectlyandfree of chargeto a newlyfoundedpartnership of taxadvisors, in which he istheprincipalpartner, so thatthatpartnershipcanusethatclientbase in itsbusiness, withoutthatclientbasehoweverbecomingpart of thecapitalassets of thenewlyfoundedpartnership, is not entitledtodeduct Input-VAT paid on theacquisition of theclientbaseconcerned.

  31. Judgment of the Federal Tax Court 22 August 2014 XI R 26/10 • ItispossiblethatMrMalburghadacquiredtheclientbase at issue in thecourse of hisactivityas a managingdirektor of the „newpartnership“ andthatthecostsresultingfromthatacquisitionhadtobeconsideredasformingpart of thegeneralcostsrelatingtohisactivityasmanagingdirector • ThenMrMalburgmightbeentitledtodeduct Input-VAT • Toinvestigatethe relevant factsforthisassumptionthe Federal Tax Court hadtogivethecase back to Financial Court of Saarland….

  32. Judgment of the ECJ 22 October 2015Case C-126/14, Sveda • Facts of thecase Svedais a forprofit legal personwhoseactivitiesconsist in theorganisation of trade fair, conferences, leisureactivities etc. On 2 March 2012 Svedaconcludedan agreementwiththe National Paying Agency under a Ministry. UnderthatagreementSvedaundertooktoimplementtheprojectentitled „Baltic mythologyrecreational (discovery) path“ andtoofferthepublicaccesstoitfree of charge. The agencypayed a share of upto 90 % of thecosts of implementingtheproject, withtheremainingexpensestobecoveredbySveda. Svedadeductedthe Input-VAT relatingtotheconstructionwork of thepath. The taxofficedeniedthededuction of the Input-VAT….

  33. Judgment of the ECJ 22 October 2015Case C-126/14, Sveda II. Questionreferredtothe ECJ Can Article 168 of the VAT-Directivebeinterpretedasgranting a taxablepersontherighttodeduct Input-VAT paid in producingoracquiring non-currentassetsintendedforbusinesspurposes, which….aredirectlyintendedforusebymembers of thepublicfree of charge, but mayberecognizedas a means of attractingvisitorsto a locationwherethetaxableperson, in carrying out hiseconomicactivities, planstosupplygoodsand/orservices?

  34. Judgment of the ECJ 22 October 2015Case C-126/14, Sveda III. Considerations of the ECJ • A personwhoincursinvestmentexpenditurewiththeintention, confirmedbyobjectiveevidence, of engaging in economicactivity must beregardedas a taxablepersonwhohastherighttodeduct Input-VAT • Whether a taxablepersonactsas such forthepurposes of an economicactivityis a question of factwhich must beassessedbythereferringcourt • Heretherecreationalpathconcernedmayberegardedas a means of attractingvisitorswith a viewtoprovidingthemwithgoodsandservices, such assouvenirs, foodanddrinksaswellasaccesstoattractions etc. • ThereforeSvedaacquiredorproducedthegoodswiththeintention of carrying out an economicactivity….

  35. Judgment of the ECJ 22 October 2015Case C-126/14, Sveda III. Considerations of the ECJ • The findingis not putintoquestionbythecircumstancethatthosegoodswill havetobemadeavailabletothepublic at nocost, becausethis will not preventSvedafromcarrying out economicactivities • The acquisitionorproduction of thecapitalgoodsisdirectlyintendedforusebythepublicfree of charge but at the same time itispart of thetaxableperson‘sobjective of carrying out subsequent taxedtransactions • Furthermoretheuseof capitalgoodsfree of chargedoes not affecttheexistence of thedirectand immediate link between Input and Output transactions, becausetheactivities of Svedaare not exempt of VAT nor do they fall outside thescope of VAT…

  36. Judgment of the ECJ 22 October 2015Case C-126/14, Sveda IV. Answertothequestion …A taxablepersonisentitledtodeduct Input VAT… forthepurposes of a plannedeconomicactivityrelatedto rural andrecreationaltourism, whichare (i) directlyintendedforusebythepublicfree of charge, andmay (ii) enabletaxedtransactionstobecarried out, providedthat a directand immediate link isestablishedbetweentheexpensesassociatedwiththe Input transactionsandOutput transactionsgivingrisetotherighttodeductorwiththetaxableperson‘seconomicactivityas a whole, whichis a matter forthereferringcourttodetemine on thebasisfoobjectiveevidence.

  37. Judgment of the Federal Tax Court14 Mai 2008 XI R 60/07 I. The facts of thecase In 1999 theplaintiffbuilt a restaurantand a petrolstation on hispremises. The restaurant was let – not exemptfrom VAT – toanothertaxableperson. The same happenedtothepetrolstation. Togetaccessfromthepremisestothepublicroadsit was necessarytochangethecrossingof thestreets in a roundaboutbuilding. Accordingto a treatyconcludedwiththe Fed. Rep. of Germany theplaintiff was obligedtoestablishtheroundaboutcirculation on hisowncosts. The fulfilment of thiscontract was theconditiontogetthebuildingpermissionfortherestaurantandthepetrolstation.

  38. Judgment of the Federal Tax Court14 Mai 2008 XI R 60/07 I. The facts of thecase Accordingtothe lease-agreement withtheoperator of thepetrolstationtheplaintiff was obligedtoestablishtheroundaboutcirculationandshouldreceive a payment of 8, 25 % per year of thebuildingcostsbesidesthehouserent. The taxofficedecidedthattheplaintiffhad a righttodeduct Input-VAT but also hadtopay VAT for a taxablesupply of goodsfree of charge – thesupply of theroundaboutcirculationto Germany – forbusinessuse. The plaintifflodged a complaintagainstthedecision of thetaxoffice. The taxofficerejectedthecomplaint. The Financial Court decided in favour of thetaxoffice.

  39. Judgment of the Federal Tax Court14 Mai 2008 XI R 60/07 II. Decision of the Court The Federal Tax Court decidedthattheplaintiffhad a righttodeduct Input-VAT but at the same time hadtopay VAT for a supply of goodstothe Federal Republic of Germany free of chargeforpurposes of hisbusiness (§ 3 Abs. 1b Satz 1 Nr. 3 UStG; Article 16 of the VAT-Directive). The Federal Tax Court did not seeanyproblemwith „double-taxation“ becausetheplaintiffhadtherighttodeduct Input-VAT…

  40. Judgment of the Federal Court13 January 2011 V R 12/08 (1)Ifthetaxablepersonhastheintention – rightfromthestart – tousetheacquiredgoodsorservices not forhiseconomicactivityandforsuppliesfreeof chargehe is not entitledtodeduct Input-VAT (2) Nor is he entitledtodeduct Input-VAT if he establishesdevelopmentmeasuresandhastheintention – rightfromthebeginning - tosupplytheseinfrastructureworksfree of chargeto a localcommunityforpublicuse (3) Nor is he entitledtodeduct Input-VAT if he suppliesthepremisesincludingtheestablisheddevelopmentmeasures not free of chargeto a localcommunityforpublicuse, becausethesupply of land in principleisexempt of VAT in Germany..

  41. Final remarks Thankyouforyourattention!!!

More Related