VATupdate

ECJ C-248/20 (Skellefteå Industrihus) – Order – Input VAT should not be repaid immediately if a planned real estate project is cancelled

On May 18, 2021, the ECJ issued its order in the case C-248/20 (Skellefteå Industrihus).

Context: Reference for a preliminary ruling – Article 99 of the Rules of Procedure of the Court of Justice – Taxation – Common system of value added tax (VAT) – Directive 2006/112/EC – Deduction of the input tax paid during the stage of construction of a building – Optional tax liability scheme – Abandonment of the initially planned activity – Adjustment of the deduction of the input tax paid – Reply to the question referred for a preliminary ruling which may be clearly deduced from existing case-law


Articles in the EU VAT Directive

Articles 137, 168, 184 to 187, 189 and 192 of the EU VAT Directive 2006/112/EC

Article 137
1. Member States may allow taxable persons a right of option for taxation in respect of the following transactions:
(a) the financial transactions referred to in points (b) to (g) of Article 135(1);
(b) the supply of a building or of parts thereof, and of the land on which the building stands, other than the supply referred to in point (a) of Article 12(1);
(c) the supply of land which has not been built on other than the supply of building land referred to in point (b) of Article 12(1);
(d) the leasing or letting of immovable property.
2. Member States shall lay down the detailed rules governing exercise of the option under paragraph 1.
Member States may restrict the scope of that right of option.

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

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.

The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time.

Article 189
For the purposes of applying Articles 187 and 188, Member States may take the following
measures:
(a) define the concept of capital goods;
(b) specify the amount of the VAT which is to be taken into consideration for adjustment;
(c) adopt any measures needed to ensure that adjustment does not give rise to any unjustified advantage;
(d) permit administrative simplifications.

Article 192
Where a taxable person transfers from being taxed in the normal way to a special scheme or vice versa, Member States may take all measures necessary to ensure that the taxable person does not enjoy unjustified advantage or sustain unjustified harm.


Facts

  • Skellefteå Industrihus, a company incorporated under Swedish law, planned to build, on a plot of land belonging to it, a building to be used for offices, which it intended to let out, and it therefore applied for and obtained, during the construction of the building, the right to benefit from the optional tax liability scheme as from November 2012. It then deducted 966 508 Swedish krona (SEK) (approximately EUR 95 400) of the input VAT charged on purchases it had made, mainly architectural services relating to the planned building. After one of the potential future tenants announced that it was no longer interested in renting office space in the building in question, the reassessment of the costs showed that the project was not financially profitable. The defendant in the main proceedings therefore decided, in September 2013, to abandon the project, thereby bringing the optional tax liability scheme to an end.
  • In December 2013, Skellefteå Industrihus Aktiebolag repaid all the VAT deducted during the period in which it had benefited from the optional tax liability scheme. However, three years later, taking the view that the obligation to repay the input VAT deducted was not compatible with the VAT Directive, it requested that the input deduction be accepted again.
  • Since that request was rejected by the tax authorities, Skellefteå Industrihus Aktiebolag brought an action before the Förvaltningsrätten i Umeå (Administrative Court, Umeå, Sweden), which upheld that action on the ground that the applicable national legislation was not compatible with EU law. The tax authorities therefore reimbursed Skellefteå Industrihus Aktiebolag the amount of the VAT that the latter had initially repaid.
  • Following the dismissal of the appeal brought by the tax authorities, those authorities brought an appeal before the referring court, requesting that court to order Skellefteå Industrihus Aktiebolag to repay the input VAT deducted.
  • The referring court notes, first of all, that, in the present case, there was no abuse or fraud and that the purchases were not used to carry out exempt transactions. Thus, the dispute in the main proceedings relates solely to the question of the compatibility of Chapter 9, Paragraph 11, of the Law on VAT with the VAT Directive where tax liability ceases because a building construction project is abandoned before completion and no letting has therefore taken place.
  • It observes, next, that the provisions of Chapter 9, Paragraph 11, of the Law on VAT have no direct equivalent in the VAT Directive and that it is therefore necessary to determine whether, as is argued by the tax authorities, those provisions do indeed fall within the scope of the discretion conferred on Member States by Article 137 of that directive to specify the rules governing the optional tax liability scheme that applies to the letting of immovable property. The reply to such a question cannot be deduced from the case-law of the Court of Justice and, in particular, cannot be deduced from the judgments of 12 January 2006, Turn- und Sportunion Waldburg (C‑246/04, EU:C:2006:22); of 30 March 2006, Uudenkaupungin kaupunki (C‑184/04, EU:C:2006:214); and of 28 February 2018, Imofloresmira – Investimentos Imobiliários (C‑672/16, EU:C:2018:134).
  • Lastly, it states that, should the Court of Justice consider that the legislation at issue in the main proceedings is not covered by the margin of discretion afforded to the Member States, it would still be necessary to examine whether those provisions may nevertheless be allowed in the light of the rules of the VAT Directive regarding the adjustment of deductions. In this respect, the referring court considers that the case-law of the Court of Justice, in particular its judgment of 29 February 1996, INZO (C‑110/94, EU:C:1996:67), does not provide an answer to this question either.

Question

Is it compatible with the VAT Directive, in particular with Articles 137, 168, 184 to 187, 189 and 192 thereof, that a property owner, who opted for taxation of the construction of a building and who has deducted the input tax paid on the acquisitions relating to the building project, must immediately repay the total amount of input tax, together with interest, on the ground that the liability for tax ceases by reason of the discontinuance of the construction project before the building is completed and that there is therefore no letting?


AG Opinion

None


Decision (Order)

Articles 137, 168, 184 to 187, 189 and 192 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding national legislation which requires a property owner who was granted the right to benefit from the optional tax liability scheme during the construction of a building that he or she intended to let out, and who deducted the input value added tax (VAT) charged on the purchases relating to that building project, to repay immediately all that VAT, plus any applicable interest, on the ground that the planned project that gave rise to the right of deduction did not result in any taxed activity, but as not precluding national legislation which, in such a situation, establishes an obligation to adjust the input VAT paid.


Summary

The fact that a taxpayer has abandoned a construction project cannot automatically mean that he must return the deducted VAT with interest. Such an abandonment does not mean withdrawing from the choice of taxation

  • A Swedish company began construction of an office building for lease. During the construction, it chose the option of subjecting it to taxation with VAT.
  • Therefore, it deducted the input VAT on purchases. However, the potential tenant communicated that he was no longer interested in the lease. Therefore, the project was no longer profitable. The company decided not to continue with the construction.
  • According to Swedish law, if a taxpayer chooses during the construction phase not to tax the future lease, a one-time adjustment and a return to tax authorities of all VAT deducted with interest is required.
  • The Swedish tax authorities therefore denied the right to deduct the VAT.
  • The CJEU disagreed with this approach and noted that:
    • The acquisition of goods and services by a taxable person acting as such determines the VAT deduction. The resulting right to deduct does not expire because the subsequently planned economic activity is not carried out (which is out of the taxpayer’s control).
    • If the taxpayer has opted for taxation of the rental, the right to deduct has arisen and cannot be revoked.
    • If the goods and services are later used for purposes other than subject to VAT or for VAT exempt activities, then an appropriate adjustment of the input VAT under Articles 184-187 of the VAT directive is required.
  • Therefore a taxpayer has the right to deduct input VAT on abandoned investments if he does not use the acquired goods and services for non-taxable or exempt activities. In such a situation, the question of the consequences of giving up the option to tax the rental is not relevant.

Source


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