On February 21, 2013, the ECJ issued its decision in the case C-104/12 (Becker). The case dealt with the Right to deduct input tax and whether there is a need for a direct and immediate link between an input and an output transaction in case services of lawyers performed in the context of criminal proceedings for corruption brought in a personal capacity against the managing director and main partner of a limited company)
Article in the EU VAT Directive
Article 17(2)(a) of Sixth Council Directive 77/388/EEC
In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
(a) [VAT] due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person;
Facts
- At the time of the events that gave rise to the main proceedings, Mr Becker was a sole trader and a majority shareholder in A-GmbH (‘A’), a limited company under German law. Mr Becker and X were managing directors of A, which carries out construction works for consideration that are subject to VAT. P, A’s authorised representative, subsequently also became a managing director of that company.
- Mr Becker and A were linked by an Organschaft for tax purposes within the meaning of the UStG. Consequently, Mr Becker and A were treated as one single taxable person, and Mr Becker, as a so-called ‘controlling entity’, took responsibility for the fiscal obligations of the group of undertakings consisting of his sole-trader undertaking and A.
- After A had won and performed a construction contract for consideration and subject to tax, the competent prosecuting authority brought criminal proceedings against Mr Becker and P. In effect, A was suspected of having benefited, prior to the conclusion of the contract, from confidential information concerning the tenders submitted by competing undertakings and of having therefore been able to submit the most advantageous tender. In order to obtain that information, it made payments which under criminal law were likely to be regarded as bribery or aiding and abetting on the part of Mr Becker and P, and accepting a bribe on the part of the recipient of those payments.
Questions
AG Opinion
None
Decision
The existence of a direct and immediate link between a given transaction and the taxable person’s activity as a whole for the purposes of determining whether the goods and services were used by the latter ‘for the purposes of taxable transactions’ within the meaning of Article 17(2)(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2001/115/EC of 20 December 2001, depends on the objective content of the goods or services acquired by that taxable person.
In this case, the supplies of lawyers’ services, whose purpose is to avoid criminal penalties against natural persons, managing directors of a taxable undertaking, do not give that undertaking the right to deduct as input tax the VAT due on the services supplied.
Source
