No Input Tax Deduction Without Proper Supporting Documentation: Key Takeaways

Summary

• The Zeeland-West-Brabant District Court has confirmed that businesses may only deduct input VAT if they can adequately substantiate their claim. It is the taxpayer’s responsibility to maintain sufficient records demonstrating that purchases relate to VAT-taxable business activities. The loss of accounting records, for example due to water damage, does not relieve a business of this burden of proof.
• In this case, the taxpayer carried out both VAT-taxable activities (painting services and operating a hospitality business) and VAT-exempt activities (leasing real estate). During a VAT audit, the taxpayer was only able to provide limited supporting documentation, including invoices, receipts, and handwritten accounting records for some years, while no documentation was submitted for 2022. The court concluded that the taxpayer failed to demonstrate which expenses related to taxable activities. Furthermore, the VAT on installed solar panels was not deductible because the panels served the VAT-exempt apartment rental business. As a result, the additional VAT assessment and administrative penalties remained in place.
• This ruling highlights the importance of maintaining a complete and well-organized accounting system. Businesses engaged in both taxable and VAT-exempt activities must be able to clearly allocate expenses between those activities to support any claim for input VAT recovery. Without adequate invoices, receipts, or other supporting evidence, the tax authorities are entitled to deny the deduction. Even when records are lost due to unforeseen circumstances, the responsibility for proving entitlement to input VAT generally remains with the taxpayer.

Sources

• TaxLive
• Zeeland-West-Brabant District Court
• Dutch VAT Act
• General Tax Act

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