On October 22, 2015 the Court of Justice of the European Union (CJEU) ruled in Case C‑126/14 ‘Sveda’ UAB versus Valstybinė mokesčių inspekcija prie Lietuvos Respublikos finansų ministerijos (third party: Klaipėdos apskrities valstybinė mokesčių inspekcija) (ECLI:EU:C:2015:712).

Can Article 168 of the VAT Directive be interpreted as granting a taxable person the right to deduct the input VAT paid in producing or acquiring non-current assets intended for business purposes, which, as in the case in the main proceedings, are directly intended for use by members of the public free of charge, but may be recognised as a means of attracting visitors to a location where the taxable person, in carrying out his economic activities, plans to supply goods and/or services?

The dispute in the main proceedings and the question referred for a preliminary ruling

·        Sveda is a for-profit legal person whose activities consist in the provision of accommodation, food and beverages, the organisation of trade fairs, conferences and leisure activities, as well as the engineering and consultation associated with those activities.

·        On 2 March 2012 Sveda concluded a subsidisation agreement with the National Paying Agency under the Ministry of Agriculture (Nacionalinė mokėjimo agentūra prie Žemės ūkio ministerijos). Under that agreement, Sveda undertook to implement the project entitled ‘Baltic mythology recreational (discovery) path’ and to offer the public access to it free of charge. That agency committed itself to assuming a share of up to 90% of the costs of implementing the project, with the remaining expenses to be covered by Sveda.

·        Sveda deducted the VAT relating to the acquisition or production of certain capital goods as part of the construction work on the recreational path concerned and drew up a VAT declaration for the month of June 2012, in which it referred to the input tax as being deductible. However, the State Tax Inspectorate, Region of Klaipėda (Klaipėdos apskrities valstybinė mokesčių inspekcija), seised of a request by Sveda for the repayment of the VAT concerned, found that there was no justification for such a repayment, since it was not established that the goods and services acquired were intended to be used for the purposes of an activity subject to VAT. On that basis, on 24 August 2012 the State Tax Inspectorate, Region of Klaipėda, refused deduction of those amounts.

·        Sveda brought an action before the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court) seeking annulment of the decision refusing that deduction. That action was dismissed as unfounded.

·        Sveda then brought an appeal before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court).

·        Although, in the referring court’s view, Sveda incurred the investment expenditure concerned with the intention of carrying out economic activities in the future, the referring court nevertheless is doubtful as to the deductibility of the input VAT. It questions, in that regard, whether there is a direct and immediate link between the expenses associated with the construction work carried out and the economic activities planned by Sveda, on the ground that the recreational path is directly intended for use by the public free of charge.

·        It was in those circumstances that the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court for a preliminary ruling:

‘Can Article 168 of the VAT Directive be interpreted as granting a taxable person the right to deduct the input VAT paid in producing or acquiring non-current assets intended for business purposes, which, as in the case in the main proceedings, are directly intended for use by members of the public free of charge, but may be recognised as a means of attracting visitors to a location where the taxable person, in carrying out his economic activities, plans to supply goods and/or services?’

The CJEU ruled as follows:

Article 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as granting, in circumstances such as those in the main proceedings, a taxable person the right to deduct the input value added tax paid for the acquisition or production of capital goods, for the purposes of a planned economic activity related to rural and recreational tourism, which are (i) directly intended for use by the public free of charge, and may (ii) enable taxed transactions to be carried out, provided that a direct and immediate link is established between the expenses associated with the input transactions and an output transaction or transactions giving rise to the right to deduct or with the taxable person’s economic activity as a whole, which is a matter for the referring court to determine on the basis of objective evidence.

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

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