All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Unconditional recovery of VAT on construction expenses on third party real estate

Sponsored by eygreece.png
Supreme Administrative Court of Greece paves the way

Nikoletta Merkouri of EY in Greece explains how the Supreme Administrative Court of Greece has paved the way for businesses to secure VAT recovery on expenses incurred for construction expenses on third party real estate.

The Supreme Administrative Court of Greece upheld, in decision 1108/2021, that the right of businesses to deduct input VAT on expenses incurred for construction works, improvements, and additions performed on third party real estate remains, even if the taxable person is not entitled – at the time the expenses are realised – to use such property for a period of at least nine years. 

The right of the business to use and perform works on third party real estate may derive from a legal relationship with the property’s owner, like a concession or leasing agreement, or even on the basis of adverse possession rights. 

This judgment was issued by invoking predominantly the Court of Justice of the European Union’s (CJEU) decision in case C-98/07 (Nordania Finans A/S and BG Factoring A/S). In this case, the CJEU upheld the position that the right given to member states based on Article 20 paragraph 4 of the Sixth Directive (provision now found in Article 189 of Directive 2006/112/EC) to define the concept of capital goods, applies only for the purposes of applying Article 20 paragraphs 2 and 3 of the Sixth Directive (provisions now found in Articles 187 and 188 of Directive 2006/112/EC), which set out the rules relating to adjustments of deductions. 

These provisions of the Directive have been transposed into Article 33 of the Greek VAT Code (Law 2859/2000). More specifically, availing of the right granted by Article 189 of the Directive, Article 33 paragraph 4 of the Greek VAT Code includes a definition assimilating construction, improvement works and additions on third party real estate to capital goods, on the condition that the business may use the property based on a legal relationship, with a duration of at least nine years. 

However, contrary to the judgment, and according to the practice followed by the Greek VAT Administration to date invoking guidelines included in Circulars issued back in 1992, the taxable person is required to hold legal possession of the third party property for at least nine years at the time when the construction works, improvements, and additions are performed. Otherwise, the business is not entitled to validly deduct or request the refund of the corresponding input VAT. 

However, according to the judgment, based on this practice, the Greek VAT Administration has – in essence – set an inadmissible time condition to the exercise of the right to deduct VAT, in the context of Article 30 of the Greek VAT Code (in so far as transposing the provisions of Articles 167 and 168 of the Directive into the Greek VAT Code). 

The direct impact of this development is that there would appear to be now grounds for businesses that incur expenses for construction works, improvements, and additions on third party real estate held for a period of less than nine years, to support input VAT deduction, despite the interpretation and approach followed thus far by the Greek VAT Administration. 

Furthermore, businesses may also examine the possibilities of filing an interest-bearing refund request for relevant input VAT amounts previously not deducted or claimed for refund, considering the applicable statute of limitation provisions or other restrictions, depending on the case. 

 

 

 

Nikoletta Merkouri

Director, EY Greece

E: nikoleta.merkouri@gr.ey.com

 

More from across our site

The Indian Union Budget made some significant changes that will affect taxpayers, as Ranjeet Mahtani, Saurabh Shah, and Meetika Baghel of Dhruva Advisors explain.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
This week the Biden administration has run into opposition over a proposal for a federal gas tax holiday, while the European Parliament has approved a plan for an EU carbon border mechanism.
Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
Businesses must ensure any alternative benchmark rate is included in their TP studies and approved by tax authorities, as Libor for the US ends in exactly a year.
Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree