ECG T-96/26 (TellusTax Advisory) – Questions – VAT deductions in the event of different VAT treatment between Member States

Summary

• Case Overview: The General Court of the EU is examining whether an EU Member State can deny the right to deduct input VAT for services that are taxable in the provider’s country (Sweden) but exempt in the recipient’s country (Luxembourg) due to different implementations of the VAT Directive, specifically concerning the management of special investment funds.
• Importance for Cross-Border Services: The outcome will impact businesses offering cross-border services within the EU, particularly in the financial sector, where differing national interpretations of VAT exemptions can affect the right to deduct VAT. Companies like TellusTax Advisory AB, which provides services to clients classified as Financial Vehicle Corporations, are particularly concerned.
• Legal Positions: The Swedish Tax Authority argues that allowing deductions for services exempt in Luxembourg would create competitive disparities, while TellusTax contends that such limitations have no basis in the VAT Directive and that the refusal to deduct would disadvantage Swedish companies compared to those operating solely domestically. The Högsta förvaltningsdomstolen has referred the case to the Court of Justice to clarify the compatibility of these practices with EU VAT law.

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Questions

Is it compatible with Articles 168(a) and 169(a) of the VAT Directive to refuse to deduct input tax in respect of expenditure incurred by a taxable person in one Member State in connection with the supply of services to a taxable person in another Member State on the ground that the transaction is not taxable in that other Member State when it would have been taxable in the first Member State, where the differences in taxation are the result of the way in which the Member States have transposed the exemption in Article 135(1)(g) of the VAT Directive?

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Sources

• PwC

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