VATupdate

ECJ C-56/21 (ARVI ir ko) – Questions – Option for a VAT taxable sale of real estate to a non/late registered buyer

Articles in the EU VAT Directive 

Article 188(2) of the EU VAT Directive 2006/112/EU

Article 188

2. The adjustment provided for in paragraph 1 shall be made only once in respect of all the time covered by the adjustment period that remains to run. However, where the supply of capital goods is exempt, Member States may waive the requirement for adjustment in so far as the purchaser is a taxable person using the capital goods in question solely for transactions in respect of which VAT is deductible.


Facts

Arvi, after selling an old building in May 2015 to a taxable person who was not a registered VAT payer, at a later stage had charged VAT. The central tax authority has pointed out that only VAT registered buyers can opt for a VAT taxable supply. Arvi had no right to subject the sale to VAT.  The buyer of the property was registered as a VAT taxable person in June 2015. Arvi argues that the conditions are contrary to the principle of VAT neutrality and the principle of free competition, and is in no way compatible with the objectives of the Directive and the case law of the court.

Article 188(2) of the Directive provides for the possibility not to revise a VAT deduction even if the supply of investment goods is exempt, if the recipient is a taxable person who continues to use the investment goods in question exclusively for transactions for which VAT is deductible. However, Lithuania, as a Member State, has not opted for the option provided for in Article 188(2) of the Directive to waive the requirement for revision. The referring court wonders whether the choice made by the Lithuanian legislature, namely to make the right of option to deduct VAT conditional on the customer being a taxable person registered as a VAT taxable person, safeguards the principles of the directive, having regard to its objectives and substance. The referring court also raises the question whether the choice of the taxable person to charge VAT on the supply of an old immovable property, where that choice does not satisfy the requirement, laid down in Article 32 of the Law on VAT, that the purchaser be registered as a taxable person for VAT purposes, has the effect of enabling that transaction to be classified as a taxable supply of capital goods which does not give rise to an obligation on the part of the supplier of the goods to review the relevant VAT deduction. Furthermore, the question arises whether the tax inspectorate’s requirement that the supplier review the VAT deduction in the circumstances of this case, where the purchaser of the immovable property was registered as a VAT taxable person one month after carrying out the transaction, is consistent with the substance of the Directive and with the principles developed in the Court’s case law.


Questions

  1. Is national legislation under which a VAT taxable person may choose to charge VAT on the exempt supply of immovable property only if that property is transferred to a taxable person identified for VAT purposes at the time of the conclusion of the transaction consistent with the interpretation of Articles 135 and 137 of the VAT Directive and with the principles of fiscal neutrality and effectiveness?
  2. If the answer to the first question is in the affirmative, is an interpretation of the national legislation which requires the supplier of immovable property to adjust the input tax deducted in respect of the immovable property transferred, where the supplier has opted to charge VAT on the supply of the immovable property but such an option is not possible under national law solely because the purchaser is not identified for VAT purposes, consistent with the provisions of the VAT Directive governing the supplier’s right to deduct and adjustment of the deduction and with the principles of VAT neutrality and effectiveness?
  3. Do the provisions of the VAT Directive governing the supplier’s right to deduct VAT and the adjustment of deductions and the principle of neutrality of VAT preclude an administrative practice which, in circumstances such as those in the main proceedings, requires the supplier of a property to adjust the input tax deducted on the acquisition or manufacture of the property [or. 6] because the transfer of that immovable property is deemed to be an exempt supply due to the inability to exercise the right of option to charge VAT (namely, the purchaser did not have a VAT identification number at the time the transaction was concluded), where the purchaser of the immovable property had already requested identification for VAT purposes prior to the conclusion of the transaction and was identified for VAT purposes one month after the conclusion of that transaction? Is it relevant in such a case to verify that the purchaser of the immovable property, identified for VAT purposes after the conclusion of the transaction, has actually used the acquired property for activities subject to VAT and that there are no indications of fraud or abuse?

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