|
|
|
Anna Zafirova |
Simeon Grigorov |
The European Court of Justice (ECJ) has announced its decision in the case Eon Asset Management OOD v Direktor na Direktsia "Obzhalvane i upravlenie na izpalnenieto (Case C-118/11) following a request for preliminary ruling by the Administrative Court of Varna (Administrativen sad Varna) dated March 7 2011.
Facts
Bulgarian company Eon Aset Menidjmunt entered into a leasing contract and a financial leasing contract for motor vehicles for the transportation of the company's managing director between his private residence and his workplace. In its VAT declaration, the company deducted the VAT included in all invoices received under both leasing contracts.
The tax authorities, however, objected claiming that the taxpayer had no right to deduct the input VAT since the leased vehicles had not been used for the purposes of Eon Aset's economic activity.
Findings
Interpreting Article 168 of the EU VAT Directive 2006/112, the ECJ made a clear distinction between the conditions to be satisfied under leasing contract and financial leasing contract.
In the first case, the main requirement for the leased motor vehicle is to be used for the purposes of the taxpayer's taxable transactions, such as the existence of a direct and immediate link between the use of that vehicle and the taxable person's economic activity should exist.
As for the financial leasing, two specific conditions need to be satisfied: the leased vehicle should be placed in the category of capital goods; and upon acquisition, the vehicle should be allocated entirely to the assets of the company. If these two requirements are present, any use of this vehicle will be considered as supply of services carried out for consideration.
The ECJ also ruled out that Articles 168 and 176 of the EU VAT Directive do not preclude provisions in national legislation excluding the right of the taxpayer to deduct input VAT for goods/services intended to be supplied free of charge or for activities outside the scope of the taxable person's economic activity provided that goods categorised as capital goods are not allocated to the assets of the undertaking.
Leaving to the referring Bulgarian court to assess whether there is a direct and immediate link between the leasing of the motor vehicle and the economic activity of the taxpayer, the ECJ pointed out the importance of the allocation of the motor vehicle under financial leasing contract to the assets of the company in order to determine the taxpayer's right to VAT deduction in the event that the vehicle had been only partly allocated to its business assets.
Impact
This new decision comes as an important addition to the sequence of recent interpretations by the ECJ of the right to deduct input VAT on reference by Bulgarian courts (e.g. C-203/10, Case C-153/11). It provides a valuable insight to Articles 168 and 173 of the EU VAT Directive, namely that the use/future use of the goods/services acquired by the taxable person should be assessed not as a prerequisite for the right to VAT deduction, but as a ground to adjust the amount of input VAT to which the taxpayer is entitled to.
Anna Zafirova (anna.zafirova@eurofast.eu), Eurofast Taxand, Cyprus and Simeon Grigorov (simeon.grigorov@eurofast.eu), Sofia Office, Bulgaria
Eurofast Global
Tel: +359 2 988 69 78
Website: www.eurofast.eu
