On Sept 17, 2020, the ECJ issued its decision in the case C-791/18 (Stichting Schoonzicht). This case is about the Dutch revision scheme for capital goods is in line with the EU VAT Directive, looking after an interpretation of art. 184 to 187 of the the EU VAT Directive 2006/112/EU.
Article in the EU VAT Directive
Articles 184 to 187 of the EU VAT Directive 2006/112/EC (Right to deduct VAT)
Article 184
The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.
Article 185
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16.
However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.
Article 186
Member States shall lay down the detailed rules for applying Articles 184 and 185.
Article 187
1. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.
Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.
In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.
2. The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.
Facts
- Foundation Schoonzicht has had an apartment complex built on its land, consisting of seven residential apartments.
- Construction commenced in 2013 and the complex was completed in July 2014.
- For VAT, this delivery constituted a supply of goods within the meaning of Article 3, paragraph 1, c of the Dutch VAT Act.
- With this provision, the Dutch legislator has made use of the option laid down in Article 14 (3) of the VAT Directive 2006 to consider the construction of certain immovable works as the delivery of goods.
- The VAT that was charged in the course of 2013 in connection with the construction of the complex was fully deducted as the property was meant to be used for VAT taxable activities.
- From 1 August 2014, however, four of the apartments have been leased with VAT exemption. The other three apartments were not used in 2014.
- Stichting Schoonzicht has reported output VAT to be attributed to these apartments, for the period in which the four apartments were taken into use (the third quarter of 2014). However, the foundation then appealed against this payment, arguing that for investment goods a revision of the entire deduction conflicts with the VAT directive.
- The Inspector disagrees.
- The Dutch Supreme Court reads article 187 of the VAT Directive in conjunction with Articles 184 to 186 and also feels that the Dutch revision rules are in line with these articles. However, it is not beyond any reasonable doubt that Articles 184 to 187 of the VAT Directive 2006 allow that during the first revision year all input VAT can initially be recovered. The Supreme Court therefore presents this issue to the Court of Justice.
Questions
Do Articles 184 to 187 of the 2006 VAT Directive 1 preclude a national adjustment regime for capital goods which provides for an adjustment spread over a number of years, whereby in the year the goods enter into use — which year is moreover the first adjustment year — the total amount of the initial deduction for that capital good is adjusted (revised) in a single step, if, upon the entry into use thereof, it turns out that that initial deduction deviates from the deduction which the taxable person is entitled to apply on the basis of the actual use of the capital good?
If Question 1 is answered in the affirmative:
Must Article 189(b) or (c) of the 2006 VAT Directive be interpreted as meaning that the single adjustment of the initial deduction in the first year of the adjustment period referred to in Question 1 constitutes a measure which the Netherlands may adopt for the application of Article 187 of the 2006 VAT Directive?
AG Opinion
A national adjustment regime for capital goods which provides that in the year in which the goods enter into use the total amount of the initial deduction may be adjusted in a single step if, upon entry into use, it turns out that that initial deduction deviates from the deduction to which the taxable person is entitled on the basis of the actual use of the capital goods, does not fall under Article 187 et seq. of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, but falls under Articles 184 to 186 of that directive. Those provisions do not oppose such a national adjustment regime.
Decision
Articles 184 to 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as not precluding a capital goods adjustment scheme, laid down in national rules in which the adjustment is to be spread over several years, from providing that, in the year the goods in question are first used, where that year is also the first adjustment year, the total amount of the initial deduction for those capital goods is adjusted in a single step, if, when first used, it becomes apparent that that deduction deviates from the deduction which the taxable person was entitled to apply on the basis of the actual use of those goods.
Source
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