Referral in case deduction of input VAT market-maker

Deduction of input tax market maker: gross trade result as a benchmark

The Supreme Court has returned a case to lower courts regarding a fiscal unity engaged in market making, which seeks to use the gross trading result as a basis for VAT deductions on mixed costs, similar to precedent set in foreign exchange transactions.
The Amsterdam Court of Appeal initially ruled that the fiscal unity did not provide enough numerical data and failed to clarify whether certain payments constituted fees for services, which the Supreme Court criticized, highlighting the need to assess the fiscal unity’s position on gross trading results.
The Supreme Court stated that the fiscal unity can use reasonable estimates to demonstrate the location of its customers, allowing for the determination of the EU/non-EU ratio, and instructed the Hague Court of Appeal to evaluate the customer distribution and the nature of the payments received from subsidiaries.

Supreme Court’s Directive: The Supreme Court ruled that the Court of Appeal should have considered X BV’s argument that the fees for securities transactions could be calculated based on the gross trading results over a specified period, highlighting the need for a thorough examination of this method.
Background on X BV’s VAT Exemptions: X BV, which engages in market making and trading financial instruments, operates under VAT-exempt supplies as defined by the VAT Act 1968. The company previously agreed with tax authorities on how to determine VAT deductions for mixed costs, but sought adjustments in 2016 to include remuneration from its foreign subsidiaries in the pro rata calculation for higher input tax deductions.
Guidelines for Court of Appeal: The Supreme Court referred the case back to the Court of Appeal of The Hague and provided specific guidelines on determining the taxable amount for securities transactions and evidentiary requirements under the VAT Act. This emphasizes the importance of substantiating claims for VAT deductions with appropriate numerical data and allocation methods.