Briefing document & Podcast: C-621/19 (Weindel) VAT Deduction – Import Costs and Ownership

Briefing Document: EU VAT Deduction for Importers – The Weindel Case

I. Executive Summary

The Weindel case (C-621/19) addressed a crucial aspect of Value Added Tax (VAT) deduction rights for importers within the European Union, specifically under Article 168(e) of Directive 2006/112/CE (the VAT Directive). The core issue revolved around whether a company, Weindel Logistik Service SR (Weindel), which imported goods solely for reconditioning services without acquiring ownership or bearing the cost of the goods, could deduct the import VAT paid.

The Court of Justice of the European Union (CJEU) ultimately ruled that the right to deduct import VAT is precluded if the importer does not have the right to dispose of the goods as an owner and if the upstream import costs are either non-existent or not incorporated into the price of the specific downstream operations or the overall economic activities of the taxable person. This decision reinforces the “direct and immediate link” principle, emphasising that for VAT deduction on imports, the cost must be demonstrably integrated into the price of the taxable person’s own supplies, even if they do not own the goods.

II. Case Background and Legal Questions

Weindel, a Slovakian company specialising in reconditioning services, imported goods from non-EU countries (Switzerland, Hong Kong, and China) into Slovakia. These goods were then reconditioned and dispatched to other EU Member States or exported. Crucially, Weindel did not own the goods; ownership remained with its Swiss client, and Weindel only invoiced for its reconditioning services.

Weindel paid VAT on the imports and sought a deduction. The Slovak tax authorities (Finančné riaditeľstvo Slovenskej republiky) refused this deduction, arguing that Weindel neither owned the goods nor was there a “direct and immediate link” between the cost of acquiring the goods (which Weindel did not bear) and its economic activity. This refusal led to a protracted legal battle in the Slovak courts, culminating in a preliminary reference to the CJEU by the Najvyšší súd Slovenskej republiky (Supreme Court of the Slovak Republic).

The preliminary questions to the CJEU primarily concerned the interpretation of Article 168(e) of the VAT Directive, asking:

Whether the right to deduct import VAT is conditional on the importer having “the right of ownership over these goods or the right to dispose of them as owner.”
Whether the right to deduct import VAT arises “only if these goods are used for the purposes of the taxable person’s taxable transactions such as the sale of the goods in question on national territory, delivery to another Member State or export to a third country.”
Whether the “direct and immediate link” condition is fulfilled in these circumstances where the cost of the goods was not borne by the taxable person and thus could not be included in the price of the downstream operation.

III. Key Legal Provisions and Principles

The case primarily hinged on the interpretation of Article 168(e) of Directive 2006/112/CE, which states that an “assujetti” (taxable person) has the right to deduct VAT paid on imported goods “in so far as the goods and services are used for the purposes of his taxable transactions.” Other relevant provisions of the VAT Directive include:

Article 2(1)(d): Imports of goods are subject to VAT.
Article 167: The right to deduct arises when the deductible VAT becomes chargeable.
Article 178(e): Requires the taxable person to hold an import document designating them as the consignee or importer.
Article 201: Designates the person(s) liable for import VAT.

The core legal principle at play was the “direct and immediate link” requirement for VAT deduction. As stated by the CJEU, “the existence of a direct and immediate link between a particular upstream operation and one or more downstream operations giving rise to a right to deduct is, in principle, necessary for a right to deduct input VAT to be recognised for the taxable person and to determine the extent of such a right.” This means the expenses for acquiring upstream goods or services must “form part of the cost components of the price of the downstream taxable operations giving rise to deduction.”

An exception to this is when costs “form part of the general overheads” of the taxable person, and are “as such, cost components of the price of the goods or services he supplies.” In such cases, these costs have “a direct and immediate link with the entire economic activity of the taxable person.”

Weindel argued that the import of goods was essential for its reconditioning services, establishing a causal link, and that the ownership condition was not explicitly in the law. It also invoked the principle of fiscal neutrality, arguing that the refusal violated this fundamental tenet of the common VAT system, which aims to ensure similar treatment for businesses and place the VAT burden on the final consumer.

IV. CJEU’s Reasoning and Ruling

The CJEU issued a reasoned order under Article 99 of its Rules of Procedure, indicating that the answer was clear from existing jurisprudence.

Reaffirmation of “Direct and Immediate Link”: The Court reiterated that the right to deduction requires the imported goods to be “used for the purposes of his taxable transactions.” This condition is met “only when the cost of the upstream services is incorporated into the price of the particular downstream operations or into the price of the goods or services supplied by the taxable person in the course of his economic activities.”
Influence of DSV Road Precedent: The CJEU explicitly referenced its previous ruling in DSV Road (C-187/14). In that case, the Court found that a carrier could not deduct VAT on transported goods if the value of those goods was not incorporated into the carrier’s service price. This established a precedent that “persons who import goods without being their owners are not able to benefit from the right to deduct VAT, unless they are able to establish that the cost of the import is incorporated into the price of the specific downstream operations or into the price of the goods or services supplied by the taxable person in the framework of their economic activities.”
VAT Committee Guidelines: The Court noted that the non-binding guidelines from the VAT Committee aligned with its interpretation. These guidelines suggest that a taxable person importing goods does not have a right to deduct VAT if they “do not obtain the right to dispose of the goods as owner” and “the cost of the goods does not have a direct and immediate link with his economic activity.” While not legally binding, they “constitute an aid to the interpretation of Directive 2006/112.”
Ultimate Ruling: The CJEU concluded that Article 168(e) of Directive 2006/112/CE “must be interpreted as precluding the grant of a right to deduct VAT to an importer when he does not have the right to dispose of the goods as if he were the owner and when the upstream import costs are non-existent or are not incorporated into the price of the specific downstream operations, or into the price of the goods and services provided by the taxable person in the context of his economic activities.” The national court (Slovak Supreme Court) was tasked with verifying whether this was the case for Weindel.

V. Implications for Businesses

This ruling clarifies that simply being the importer of record for customs purposes, or even being the person liable for import VAT, does not automatically grant the right to deduct that VAT if the underlying economic reality does not align with the principles of VAT deduction. For businesses that import goods they do not own for processing, reconditioning, or other service provisions, the key takeaway is:

Ownership is not a strict prerequisite, but economic integration of costs is paramount. While the absence of ownership is a significant factor, the decisive element for VAT deduction on imports is whether the import costs are genuinely integrated into the price of the taxable person’s own downstream taxable supplies (services or goods).
A clear economic link is required. If the cost of the imported goods or the import itself is not reflected as a cost component in the final price charged for the taxable person’s services or goods, then the direct and immediate link necessary for deduction under Article 168(e) is absent.
Businesses must document how import costs factor into their pricing. To claim import VAT deduction, companies in Weindel’s situation must be able to demonstrate that the import costs, even if not directly for the acquisition of the goods themselves, are part of their general overheads or are specifically incorporated into the price of their services. Simply performing a service on imported goods owned by a client, without the import cost being reflected in the service fee, is insufficient.

Briefing document & Podcast: C-621/19 (Weindel) VAT Deduction – Import Costs and Ownership

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