On June 16, 2016, the ECJ issued its decision in the case C-186/15 (Kreissparkasse Wiedenbrück).
Context: Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112/EC — Deduction of input tax — Article 173(1) — Goods or services used to carry out both taxable transactions and exempt transactions (‘mixed use goods and services’) — Determining the amount of the value added tax deduction — Deductible proportion — Article 174 — Deductible proportion calculated by applying an allocation key according to turnover — Article 173(2) — Derogation — Article 175 — Rounding-up rule for the deductible proportion — Articles 184 and 185 — Adjustment of deductions
Article in the EU VAT Directive
Articles 173(2), 175(1), 184 and 185 of the EU VAT Directive 2006/112/EC.
Article 173 (Right to deduct VAT – Proportional 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.
Article 175 (Right to deduct VAT – Proportional deduction)
1. The deductible proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next whole number.
Article 184 (Right to deduct VAT – Adjustment of deductions)
The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.
Article 185 (Right to deduct VAT – Adjustment of deductions)
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. ▼B
Facts
- The Kreissparkasse is a credit institution.
- The Kreissparkasse established that the deductible proportion of the VAT attributable to its acquisition of mixed use goods and services was 13.55% for the year 2009 and 13.18% for the year 2010, percentages which it rounded up to 14%. In calculating, for those financial years, the amount of adjustments it needed to make under Article 15a of the UStG because of its waiver of a tax exemption scheme with respect to transactions with its professional clients, the Kreissparkasse also applied deductible proportions which it rounded up to 14%.
- Following a tax inspection carried out in 2011 in relation to those financial years, the Kreissparkasse was required, by virtue of two decisions of the Wiedenbrück Tax Office of 3 January 2012, to effect a further tax adjustment on the ground that it had wrongly rounded up the deductible proportions of VAT to the next whole number.
- The Kreissparkasse lodged an objection to those decisions, relying on the provisions of Article 175(1) of Directive 2006/112, according to which, the applicant claims, the deductible proportion must be rounded up to a figure not exceeding the next whole number.
- By decision of 13 June 2012, Wiedenbrück Tax Office dismissed that objection on the ground that, in essence, Article 175(1) of Directive 2006/112 is only applicable when the Member State concerned has not made use of the option set out in Article 173(2) of that directive to derogate from the calculation method set out in the second subparagraph of Article 173(1) of that directive. According to the Tax Office, the Federal Republic of Germany has made use of that option since, in accordance with the third sentence of Article 15(4) of the UStG, the deductible proportion must be established, as far as possible, according to the so-called method of ‘economic allocation’.
- By proceedings brought before the Finanzgericht Münster (Finance Court, Münster, Germany) on 16 July 2012, the Kreissparkasse contested the Wiedenbrück Tax Office’s decision of 13 June 2012. The referring court states that, in paragraph 21 of the judgment of 18 December 2008 in Royal Bank of Scotland (C‑488/07, EU:C:2008:750), the Court held that the rounding-up rule laid down in the second subparagraph of Article 19(1) of the Sixth Directive is not applicable when the goods and services at issue are subject to one of the special sets of rules laid down in the third subparagraph of Article 17(5) of that directive. It is however in doubt as to whether this solution is also valid for Article 175(1) of Directive 2006/112.
Questions
(1) Are the Member States required to apply the rounding-up rule in Article 175(1) of Directive 2006/112 in cases where the deductible proportion is calculated in accordance with one of the special methods set out in headings (a), (b), (c) or (d) of Article 173(2) of that directive?
(2) Are the Member States required to apply the rounding-up rule in Article 175(1) of Directive 2006/112 when tax is adjusted in accordance with Article 184 et seq. of that directive, where the deductible proportion within the meaning of Article 175(1) of that directive is calculated in accordance with one of the special methods set out in headings (a), (b), (c) or (d) of Article 173(2) of that directive or in accordance with headings (a), (b), (c) or (d) of the third subparagraph of Article 17(5) of the Sixth Directive?
(3) Are the Member States required to adjust deductions in accordance with Article 184 et seq. of Directive 2006/112 by applying the rounding-up rule (second question) in such a way as to round the amount subject to adjustment up or down to a whole percentage in favour of the taxable person?
AG Opinion
None
Decision
(1) Article 175(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the Member States are not required to apply the rounding-up rule laid down in that provision where the deductible proportion is calculated in accordance with one of the derogating methods set out in Article 173(2) of that directive.
(2) Article 184 et seq. of Directive 2006/112 must be interpreted as meaning that the Member States are required to apply the rounding-up rule laid down in Article 175(1) of that directive in the event of adjustment where, under their national legislation, the deductible proportion has been calculated in accordance with one of the methods set out in Article 173(2) of that directive or in the third subparagraph of Article 17(5) of the 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, only where that rule was applied to determine the initial amount of the deduction.
Summary
Member States are not obliged to apply the rounding rule of Article 175 paragraph 1 of the VAT Directive when the deductible part is calculated on the basis of one of the deviating methods as referred to in Article 173 paragraph 2 of the VAT Directive.
Art 184 et seq. of the VAT Directive must be interpreted as meaning that the Member States, when the deductible part has been calculated under their national legislation on the basis of one of the methods referred to in Article 173, paragraph 2, of the VAT Directive or in Article 17, paragraph 5, third subparagraph Sixth Directive, only have to apply the rounding rule of Article 175(1) of the VAT Directive in the event of revision if this rule has been applied to determine the original amount of the deduction.
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