Relevant articles in the EU VAT Directive
Article 168(e) of the EU VAT Directive 2006/112/EC
Article 168 (Origin and Scope of Right of Deduction)
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:
(e) the VAT due or paid in respect of the importation of goods into that Member State.
Why Article 168(e) Matters
- Guarantees the Right to Deduct Import VAT
- It allows taxable persons (i.e., VAT-registered businesses) to deduct import VAT as input tax, provided the imported goods are used for taxable activities.
- Without this right, businesses would suffer double taxation: paying VAT on imports and again on onward sales.
- Ensures Fiscal Neutrality
- A fundamental VAT principle: VAT should be a tax on consumption, not on business.
- This provision ensures that VAT is neutral for businesses, even when they import goods from outside the EU.
- Supports Intra-EU and Global Trade
- Encourages trade by ensuring that VAT on non-EU imports doesn’t become a cost to EU businesses.
- Essential for businesses engaged in global supply chains.
- Interacts with Customs Law
- Import VAT is charged at the time goods enter the EU.
- Article 168(e) links customs procedures with VAT law, ensuring businesses can reclaim VAT paid at the border.
Practical Application
- A company in Germany imports raw materials from the U.S.
- German customs charges VAT at importation.
- Under Article 168(e), the company can deduct that VAT on its VAT return, assuming the materials are used in taxable production.
⚠️ Key Conditions
- The importer must be a taxable person.
- Goods must be used in taxable activities (i.e., not exempt supplies).
- The VAT must be legally due and paid.
ECJ Cases decided
- C-10/08 (Commission v Finland) – Finland is not allowed to allow the deduction of motor vehicle tax from VAT
- C-414/10 (Véleclair) – Right to deduct VAT on importation not subject to the actual prior payment
- C-187/14 (DSV Road) – No deduction of VAT on import by the carrier
- Point 49: In that regard, it must be noted that, under the wording of Article 168(e) of the VAT Directive, a right to deduct exists only in so far as the goods imported are used for the purposes of the taxed transactions of a taxable person. In accordance with the settled case-law of the Court concerning the right to deduct VAT on the acquisition of goods or services, that condition is satisfied only where the cost of the input services is incorporated either in the cost of particular output transactions or in the cost of goods or services supplied by the taxable person as part of his economic activities (see judgments in SKF, C‑29/08, EU:C:2009:665, paragraph 60, and Eon Aset Menidjmunt, C‑118/11, EU:C:2012:97, paragraph 48).
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Point 50: Since the value of the goods transported does not form part of the costs making up the prices invoiced by a transporter whose activity is limited to transporting those goods for consideration, the conditions for application of Article 168(e) of the VAT Directive are not satisfied in the present case.
- C-621/19 (Weindel Logistik Service) – Order – Import VAT recovery only for the owner of the goods
- Point 46: By noting that the value of the goods transported does not form part of the costs constituting the prices invoiced by a carrier whose activity is limited to transporting these goods for remuneration, the conditions of application of Article 168 (e), of Directive 2006/112 are not met (judgment of 25 June 2015, DSV Road, C-187/14, EU: C: 2015: 421, paragraph 50), the Court clarified that persons who import goods without being the owners are not in a position to benefit from the right to deduct VAT, except to be able to establish that the cost of the importation is incorporated in the price of the particular downstream operations or in the price of the goods or services provided by the taxable person in the course of his economic activities.
Briefing document & Podcasts
C-621/19 (Weindel) VAT Deduction – Import Costs and Ownership
Working Papers/Guidelines of the VAT Commitee
- Working Paper #700 of the VAT Committee dd. Oct 19, 2011
- Guidelines 94th meeting on WP 700
- ECJ C-621/19 (Weindel Logistik Service) – Point 47: In this regard, it should be noted that the VAT Committee, an advisory committee set up under Article 398 of Directive 2006/112, adopted a consistent approach through its guidelines [94 th meeting, of 19 October 2011, document C – taxud.c.1 (2012) 243615 – 716]. Under these terms, a taxable person designated as liable for payment of import VAT is not entitled to deduct VAT when two conditions are met, namely, on the one hand, when the taxable person does not obtain the right to dispose of the goods as an owner and, on the other hand, when the cost of the goods does not have a direct and immediate link with his economic activity.
See also
- VAT deductibility on the import of goods – VATupdate
- Topical overview ECJ Cases – Link to the EU VAT Directive 2006/112/EC
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
