ECJ C-293/21 (Vittamed technologios) – Judgment – Review of VAT deduction of capital goods in case of liquidation of the taxable person

On October 6, 2022, the ECJ issued its decision in the case C-293/21 (Vittamed technologios).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Deductions from input VAT paid – Goods and services used by the taxable person for the creation of capital goods – Articles 184 to 187 – Regularization of deductions – Obligation to regularize VAT deductions in the event of the liquidation of this taxable person and the removal of the latter from the register of VAT taxable persons

Article in the EU VAT Directive

Articles 184 to 187 of Council Directive 2006/112/EC

Adjustment of the deuction of VAT

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.

Facts

The applicant is a company engaged in technical scientific research and its practical application. Since 01-03-2012, the company has no longer carried out supplies of goods and/or services on which VAT was due. In 2012 and 2013, however, she acquired goods and services, among other things, on which she calculated and deducted EUR 87,987 in input tax on the basis of the invoices issued to her. Those invoices related to supplies related to the realization of an international project financed by the EU. The project was completed on December 31, 2013 and the applicant has obtained the rights for three licenses and two prototypes. After the completion of the project, the applicant made losses in 2014 and 2015. In view of the loss and the lack of orders, it has been decided to terminate the company’s activities. In August 2015, it was decided to liquidate the company. On 10-09-2015, the applicant obtained the legal status of a legal person in liquidation. On 23-09-2015 the applicant was removed from the register of VAT payers. She also submitted the VAT return for her last tax period. Following a tax inspection, a new VAT assessment was imposed on the applicant. The applicant objected to this during the inspection, arguing, inter alia, that according to the case-law of the Court, the right to deduct input tax paid on costs incurred in preparation for an economic activity, even if the economic activity has not started up successfully and the intended taxable transactions do not take place. By decision of 19-04-2019, the Inspectorate confirmed the decision of the local tax authorities. A complaint has been filed with the tax disputes committee, who declared the complaint unfounded. The applicant subsequently lodged an appeal, which was dismissed by the court of first instance. Finally, the applicant lodged an appeal.

Consideration:

The present case raises a question as to the interpretation of the provisions of Articles 184 to 187 of the VAT Directive on the adjustment of deductions applied. Therefore, the Court should be asked for a preliminary ruling on the interpretation of the relevant rules of EU law. In particular, the question arises as to the obligation of a taxable person (the applicant) to review the applied deduction of input tax on goods and services acquired for the purpose of manufacturing capital goods when it has been decided to liquidate that person and it has been removed from the register of VAT payers,

Questions

Are Articles 184 to 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to be interpreted as meaning that a taxable person is (or is not) obliged to review the deduction of value added tax (VAT) levied on the acquisition of goods and services for the purpose of manufacturing capital goods,if the intention to use those goods for taxable economic activities no longer exists because the owner (shareholder) of the taxable person decides to liquidate the taxable person and requests that taxable person to be removed from the register of VAT payers?

Is relevant to the answer to that question what was the reason for the decision to liquidate the taxpayer, in this case because of increasing losses, the lack of orders and the doubts of the shareholder with regard to the profitability of the planned (proposed) economic activity?

AG Opinion

None

Decision

Articles 184 to 187 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,

should be interpreted as:

a taxable person has the obligation to regularize the value added tax (VAT) deductions paid upstream and relating to the acquisition of goods or services intended to produce investment goods, in the case where, due to the decision of the owner or the sole shareholder of this taxable person to put the latter in liquidation, as well as the request and the obtaining of the removal of the said taxable person from the register of persons subject to VAT, the goods of investment created have not been used in the context of taxed economic activities and never will be. The reasons justifying the decision to liquidate the same taxable person, and, therefore, the abandonment of the taxed economic activity envisaged, such as constantly increasing losses,

Summary

A taxable person is obliged under Articles 184 to 187 of the VAT Directive to adjust the deduction of input VAT with regard to the acquisition of goods or services for the purpose of manufacturing capital goods if the manufactured capital goods have not been used for taxable economic activities and will never be used for that purpose because the owner or sole shareholder of this taxable person has decided to put him into liquidation and the request to remove that taxable person from the register of VAT payers has been granted. The justifications for the decision to put the taxpayer into liquidation and therefore to forgo the intended taxed economic activity – such as steadily increasing losses.

Source:

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