ECJ C-334/20 (Amper Metal Kft.) – Judgment – Excessive advertising costs allow for Input VAT deduction

Briefing Document & Podcast C-334/20 (Amper Metal) : Excessive marketing expenses are deductible for VAT purposes

On November 25, 2021, the ECJ issued its decision in the case C-334/20 (Amper Metal Kft.).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112 / EC – Article 2 – Transaction subject to VAT – Concept – Article 168 (a), and Article 176 – Right to deduct Input VAT paid – Refusal – Advertising services qualified as excessively expensive and unnecessary by the tax authorities – No turnover generated for the benefit of the taxable person

Summary

Facts of the Case: Amper Metal Kft., a Hungarian company, sought to deduct VAT paid on advertising services amounting to approximately EUR 133,230. The Hungarian tax authority denied this deduction, claiming the services were excessively expensive and not beneficial to Amper Metal’s taxable activities.
Questions to the Court: The referring court questioned whether Article 168(a) of the VAT Directive permits the refusal of VAT deductions based on the perceived lack of economic benefit from the services or if the invoiced price is deemed excessive compared to a reference value established by tax authorities.
Court’s Decision: The Court ruled that a taxable person may deduct input VAT for services where such services constitute a transaction subject to VAT and are linked to the taxable person’s economic activity, regardless of the perceived value or impact on turnover.
Justification of the Decision: The Court emphasized that the right to deduct VAT is a fundamental part of the VAT system and should not be limited by considerations of profitability or effectiveness of services. The existence of a direct link between the services and the taxable activities is sufficient for VAT deduction, irrespective of the service’s cost relative to market value.
Implications: The judgment reinforces the principle of VAT neutrality, indicating that the right to deduct VAT cannot be denied based on subjective evaluations of service effectiveness or cost, thus promoting fair treatment of businesses under the VAT system.

Article in the EU VAT Directive

Article 168(a) of Council Directive 2006/112/EC (Right to deduct VAT)

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 ervices, carried out or to be carried out by another taxable person;

Facts

Amper Metal deducted VAT for placing advertisements on racing cars of one of Amper’s business partners.
According to the tax authorities, the costs did not relate to Amper’s taxable turnover-generating activities.
The Hungarian judge submitted preliminary questions to the EU Court of Justice.
Do the words “used” of Article 168 (a) VAT Directive 2006 mean that a right to deduct VAT can be refused if, in a transaction between independent parties, the service provided by the invoice originator was not “useful” for the taxable activities of the recipient of the invoice, because ( 1) the value of the service provided by the originator of the invoice was disproportionate to the revenue generated by the service from the customer or (2) the service in question had not generated any turnover from that user.

Questions

Must, or may, Article 168(a) of Council Directive 2006/112/EC ¹ of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) be interpreted as meaning that, under the said provision, in view of its use of the expression ‘are used’, the right to deduct VAT cannot be refused in respect of a transaction that falls within the scope of the VAT Directive on the grounds that, in the opinion of the tax authorities, the service provided by the person issuing the invoice in the course of a transaction between independent parties is not ‘beneficial’ to the taxable activities of the recipient of the invoice, in that:

the value of the service (advertising) provided by the person issuing the invoice is disproportionate to the benefit (sales revenue/increase in sales revenue) which the service generates for the recipient; or

the said service (advertising) has not generated any sales revenue for the recipient?

Must, or may, Article 168(a) of the VAT Directive be interpreted as meaning that, under this provision, the right to deduct VAT may be refused in respect of a transaction that falls within the scope of the VAT Directive on the grounds that, in the opinion of the tax authorities, the service provided by the person issuing the invoice in the course of a transaction between independent parties is for a disproportionate sum, because the service (advertising) is expensive and the price is excessive in comparison with another service or services?

AG Opinion

None

Decision

Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a taxable person may deduct input value added tax (VAT) paid for advertising services where such a supply of services constitutes a transaction subject to VAT within the meaning of Article 2 of Directive 2006/112, and has a direct and immediate link with one or more taxable output transactions or with the taxable person’s economic activity as a whole, by way of overheads, without it being necessary to take into account the fact that the price charged for such services is excessive in relation to a reference value defined by the national tax authorities or that those services have not given rise to an increase in the taxable person’s turnover.

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