ECJ Case C-140/17 (Gmina Ryjewo) – Judgment – Input VAT deduction adjustment after change of use of capital goods

Judgment of 25 July 2018 in Case C‑140/17 – Gmina Ryjewo


Gmina Ryjewo (Municipality of Ryjewo, Poland) has been registered as a taxable person for the purpose of VAT. It has commissioned the construction of a community centre. In connection with that construction work, the municipality was supplied with goods and services, in respect of which it paid VAT. Once the construction of the community centre had been completed, the municipal cultural centre was entrusted with its management.

4 Years later the municipality wanted to transfer ownership of the building into its assets and to manage it directly. The municipality intended subsequently to use the community centre both free of charge, in order to meet the needs of the municipality’s population, and for consideration, by renting it out for commercial purposes. With regard to that paid use, the municipality expressly stated its intention to issue invoices that included VAT. The municipality had not yet deducted the input VAT paid.

The tax authorities denied the deduction of input VAT, primarily on the ground that, having acquired the goods and services in question for the purpose of making the building available to the municipal cultural centre free of charge, the municipality had not acquired those goods for the purposes of an economic activity and had therefore not acted as a person subject to VAT.

Upon the appeal of the municipality, the Polsih Court decided that Gmina Ryjewo’s initial use of the goods and services for the purpose of carrying out activities that are not subject to VAT does not deprive it of the right subsequently to deduct the input tax, in the case where the intended use of those goods and services has changed and they are then used for the purpose of taxable transactions. In that regard, the municipality cannot validly be criticised for not expressly stating that, when it acquired the building, it intended to use it as part of an economic activity.


The ECJ considered that the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by EU legislation. The right to deduct VAT is, however, subject to compliance with both substantive and formal requirements or conditions.

Only a person who is a taxable person and who is acting as such at the time of the purchase of goods has a right to deduct in respect of those goods and may deduct the VAT due or paid in respect of those goods if he uses them for the purposes of his taxable transactions. The right to deduct input VAT arises at the time when the deductible tax becomes chargeable, namely when the goods are delivered.


The ECJ rules it is allowed for a municipality to adjust the deduction of VAT paid on immovable property acquired as capital goods in a situation where, at the time of the acquisition of those goods, first, they could, by their very nature, be used both for taxable activities and for non-taxable activities but were initially used for non-taxable activities, and second, that municipality had not expressly stated its intention to use those goods for a taxable activity but had also not excluded the possibility that they might be used for such a purpose, so long as it follows from an assessment of all the factual circumstances, that the it must have acted as a taxable person at the time when it made that acquisition.

Source: Curia