Greece permits recovery of VAT on unused capital goods
Nikoletta Merkouri of EY in Greece explains how recent jurisprudence by the Supreme Administrative Court and subsequent administrative developments have paved way for businesses to recognise VAT recovery on unused capital goods due to circumstances beyond the control of the business.
In Circular 2200/2019, the Greek tax administration acknowledged the right of taxable businesses to finalise input VAT deduction incurred on the purchase or construction of capital goods, where these are not used within five years from the date of the respective expense, due to circumstances beyond the control of the business.
Under the previous practice, VAT corresponding to such expenses was a cost for taxable businesses, since they were obliged to adjust this VAT amount after five years from the date the expenses were incurred. This mirrors the wording of the provisions of the Greek VAT Code, which make no exception for cases of non-use due to circumstances beyond the control of the business (Article 33, paragraph 3 of Law 2859/2000).
However, the Supreme Administrative Court of Greece has already upheld in Decision 1862/2019, that the right to deduct input VAT incurred on the acquisition of capital goods remains, even if the taxable person does not ultimately put these capital goods to use due to circumstances beyond their control. This is predominantly the case when capital goods are not used within this period due to unlawful actions or omissions by the state. Consequently, where it is safely ascertained, on the basis of law or through a court decision that capital goods have not been put to use within the five year period due to circumstances which are independent of the taxable person’s will, the latter is not obliged to adjust the related input VAT amount incurred and originally deducted.
This judgment was issued by invoking the decision of the Court of Justice of the European Union (CJEU) in case C-672/16 (Imofloresmira - Investimentos Imobiliarios SA), dated February 28 2018. In this case, the CJEU upheld its position on the lack of obligation of the taxable person to adjust input VAT due to circumstances independent of the latter’s will, as also maintained in earlier cases C-37/95 (Ghent Coal) and C-110/94 (INZO).
According to Circular 2200/2019, the Greek tax administration would appear to be now aligned with the CJEU in the foregoing judgments. More specifically, the circular provides that Investment plans subject to incentive laws (such as 3299/2004, 3908/2011 and 4399/2016), which have not yet been completed but have been granted an extension by way of specific laws, represent an indicative case where capital goods may be considered as not having been used within the time frame stipulated by law, due to circumstances independent of the taxable person’s will. The Circular also provides specific instructions regarding the supporting documents that businesses should possess, in support of the extension date for their investment plan.
The direct impact of this development is that all businesses that incur expenses for the acquisition of capital goods, would appear to be entitled not to proceed with the adjustment of input VAT, where these capital goods are not put to use timely, due to circumstances independent of their will, even if the relevant investments do not fall under any incentive law. In this regard, the Supreme Administrative Court of Greece upheld in recent Decision 1111/2020 dated May 27 2020, its position on the lack of obligation of a taxable business to adjust input VAT on capital goods that remained unused due to the financial distress of the business. The court reached this decision in view of the fact that in this case the business had a demonstrated record of actions confirming its intention to put the goods to taxable use.
Furthermore, businesses may also examine the possibilities of filing an interest-bearing refund request for relevant input VAT amounts – if already adjusted – considering the applicable statute of limitation provisions or other restrictions, depending on the case. According to the Circular, specifically for businesses that have adjusted input VAT incurred for investment plans that have been granted an extension of completion, the recovery of the relevant VAT amounts may be practically materialised by amending the VAT returns through which businesses have proceeded with the VAT adjustment.
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