On July 10, 2014, the ECJ issued its decision in the case C-183/13 (Banco Mais).
Context: Taxation — VAT — Directive 77/388/EEC — Article 17(5), third subparagraph, point (c) — Article 19 — Deduction of input tax — Leasing transactions — Mixed use goods and services — Rule for determining the amount of the VAT deduction — Derogation — Conditions
Article in the EU VAT Directive
Article 17(5) of the Sixth EU VAT Directive (Art. 173 of the EU VAT Directive 2006/112/EC)
Article 173 (Rigjt to deduct VAT – Proportional VAT Deduction)
1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.
The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.
2. Member States may take the following measures:
(a) authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;
(b) require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;
(c) authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;
(d) authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein;
(e) provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.
Facts
- Banco Mais is a bank which carries out leasing activities in the automotive sector and other financial activities.
- It is apparent from the Court’s file that, as part of those activities, Banco Mais carries out both transactions in respect of which VAT is deductible and transactions in respect of which VAT is not deductible. In so doing, Banco Mais uses goods and services used exclusively for one or other of those categories of transactions, and mixed use goods and services, for the acquisition of which it must pay VAT.
- For the 2004 tax year, Banco Mais made a full deduction of the VAT paid upon the acquisition of the goods and services used exclusively for the purpose of carrying out transactions in respect of which VAT is deductible, which included the acquisition of vehicles to meet the needs of that bank’s leasing activities.
- As regards the mixed use goods and services, Banco Mais calculated its deductible proportion on the basis of a fraction containing, as a numerator, the payments collected from the financial transactions in respect of which VAT is deductible, to which the turnover from the leasing transactions in respect of which VAT is deductible was added, and, as a denominator, the payments collected from all financial transactions, to which the turnover from all leasing transactions was added. In practice, that method led Banco Mais to consider that 39% of the VAT due or paid on those goods and services was deductible.
- Following a tax audit carried out in 2007 in relation to the 2004 tax year, Banco Mais was required, by decision of the Fazenda Pública of 7 February 2008, to pay arrears of VAT together with compensatory interest, on the grounds that the method used by Banco Mais to determine its right of deduction had led to a significant distortion in the determination of the amount of tax due.
- In that decision, the Fazenda Pública did not call into question the possibility left open to Banco Mais to calculate its deductible proportion, in relation to credit transactions other than leasing transactions, by reference, in essence, to the part of the payments collected in relation to transactions in respect of which VAT is deductible. However, the Fazenda Pública took the view, as regards the leasing transactions, that using as a criterion the part of the turnover from transactions in respect of which VAT is deductible, without excluding from that turnover the part of the rental payments offsetting the acquisition cost of the vehicles, had had the effect of distorting the calculation of the deductible proportion.
- By application lodged on 6 May 2008, Banco Mais challenged the decision of the Fazenda Pública of 7 February 2008 before the tribunal tributário de Lisboa (Lisbon Tax Court).
- That court upheld the action brought by Banco Mais, on the ground that the tax authorities had made a contra legem interpretation of Article 23(4) of the CIVA, since that provision required, without mentioning an exception with regard to leasing activities, that the proportion to be used for mixed use goods and services be calculated by reference to the share of the turnover relating to transactions in respect of which VAT is deductible. Under that provision, Banco Mais should have been allowed to take account of the whole of the rental payments made by lessees.
- The Fazenda Pública appealed to the referring court against the judgment at first instance, arguing, essentially, that the dispute does not relate to the interpretation of paragraph 4 of Article 23 of the CIVA, which clarifies the deduction rule under paragraph 1 of that article, but to the possibility left open to the authorities to require a taxable person to determine the scope of his right to deduct in accordance with the use of the goods and services at issue in order to remedy a significant distortion in taxation. Indeed, the method used by Banco Mais — which was to include, in the numerator and denominator of the fraction that it used to determine its deductible proportion, the whole of the rental payments made by customers under their leasing agreements — leads to such a distortion, since, in particular, the part of the rental payments offsetting the acquisition of vehicles does not reflect the actual part of the expenditure on mixed use goods and services that may be attributed to taxed transactions.
Questions
In a financial leasing contract under which the customer pays rent, the latter comprising financial payback, interest and other charges, does or does not the rent paid fall to be taken into account, in its entirety, in the denominator of the deductible proportion or, conversely, must only interest be taken into account, since it constitutes the remuneration, the profit, accruing to the bank from the leasing contract?
AG Opinion
None
Decision
Point (c) of the third subparagraph of Article 17(5) 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, must be interpreted as not precluding a Member State, in circumstances such as those in the main proceedings, from requiring a bank, which, inter alia, carries out leasing activities, to include in the numerator and denominator of the fraction used to determine a single deductible proportion for all of its mixed use goods and services just the part of the rental payments made by customers as part of their leasing agreements that corresponds to interest, where that use of the goods and services is primarily caused by the financing and management of those contracts, that being a matter for the national court to ascertain.
Summary
The Portuguese Banco Mais SA carries out leasing activities in the automotive sector and other financial activities. In its VAT return, Banco Mais calculates, for the mixed-use goods and services, its pro rata for the application of the deduction according to a fraction, the numerator being the compensation received for its financial transactions for which there is a right to deduct, increased with the turnover from the leasing activities for which there is a right to deduct. It uses as denominator the fees it received for all financial transactions, plus the turnover from all leasing activities. The Portuguese tax authorities do not agree with this. The Portuguese court has referred a question for a preliminary ruling in this case.
The Court of Justice EU (CJEU) rules that EU law does not preclude Banco Mais, in the numerator and denominator of the fraction, to determine one and the same pro rata for the deduction for all its goods and services for mixed-use, must only include the interest-corresponding portion of the lease payments paid by customers under their leases. According to the CJEU, this applies when these goods and services are primarily used for financing and managing the lease agreements.
Source:
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