Case C-118/11

Eon Aset Menidjmunt OOD

v

Direktor na Direktsia ‘Obzhalvane I upravlenie na izpalnenieto’ — Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite

(Reference for a preliminary ruling from the Administrativen sad Varna)

‛VAT — Directive 2006/112/EC — Articles 168 and 176 — Right of deduction — Condition relating to use of goods and services for the purposes of taxed transactions — Origin of the right to deduct — Motor vehicle leasing contract — Financial leasing contract — Vehicle used by employer to transport free of charge an employee between his home and his workplace’

Summary of the Judgment

1. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Taxable transactions — Acquisition of capital goods — Meaning

   (Council Directive 2006/112, Art. 14(1) and (2)(b))

2. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Deduction of input tax

   (Council Directive 2006/112, Art. 168(a))

3. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Deduction of input tax

   (Council Directive 2006/112, Arts 168 and 176)

1.  When a financial leasing contract relating to a motor vehicle provides either that ownership of that vehicle is to be transferred to the lessee on the expiry of that contract or that the lessee is to possess all the essential powers attaching to ownership of that vehicle and, in particular, that substantially all the rewards and risks incidental to legal ownership of that vehicle are transferred to the lessee and that the present value of the amount of the lease payments is practically identical to the market value of the property, the transaction must be treated as the acquisition of capital goods.

   (see para. 40)

2.  On a proper construction of Article 168(a) of Directive 2006/112 on the common system of value added tax, a leased motor vehicle is to be regarded as used for the purposes of the taxable person’s taxed transactions if there is a direct and immediate link between the use of that vehicle and the taxable person’s economic activity. The time when the right to deduct arises and when it is necessary to take into account the existence of such a link is on the expiry of the period to which each payment relates.

   Further, a motor vehicle leased under a financial leasing contract and placed in the category of capital goods is to be regarded as used for the purposes of taxed transactions if the taxable person acting as such acquires that vehicle and allocates it entirely to the assets of his undertaking, input value added tax payable being fully and immediately deductible, and any use of that vehicle for the taxable person’s private purposes or for those of his staff or for purposes other than those of his undertaking being treated as a supply of services carried out for consideration. It is the acquisition of the goods by a taxable person acting as such that determines the application of the value added tax system and therefore of the deduction mechanism. The use to which the goods are put, or intended to be put, merely determines the extent of the initial deduction to which the taxable person is entitled. The question whether a taxable person has acquired goods acting as such, that is, for the purposes of his economic activity within the meaning of Article 9 of the directive, is a question of fact that must be determined in the light of all the circumstances of the case, including the nature of the goods concerned and the period between the acquisition of the goods and their use for the purposes of the taxable person’s economic activity.

   (see paras 57, 58, 64, operative part 1)

3.  Articles 168 and 176 of Directive 2006/112 on the common system of value added tax do not preclude national legislation which provides for the exclusion from the right to deduct of goods and services intended to be supplied free of charge or for activities outside the scope of the taxable person’s economic activity, provided that goods categorised as capital goods are not allocated to the assets of the undertaking.

   (see para. 74, operative part 2)

Case C-118/11

Eon Aset Menidjmunt OOD

v

Direktor na Direktsia ‘Obzhalvane I upravlenie na izpalnenieto’ — Varna pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite

(Reference for a preliminary ruling from the Administrativen sad Varna)

‛VAT — Directive 2006/112/EC — Articles 168 and 176 — Right of deduction — Condition relating to use of goods and services for the purposes of taxed transactions — Origin of the right to deduct — Motor vehicle leasing contract — Financial leasing contract — Vehicle used by employer to transport free of charge an employee between his home and his workplace’

Summary of the Judgment

1. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Taxable transactions — Acquisition of capital goods — Meaning

   (Council Directive 2006/112, Art. 14(1) and (2)(b))

2. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Deduction of input tax

   (Council Directive 2006/112, Art. 168(a))

3. Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value added tax — Deduction of input tax

   (Council Directive 2006/112, Arts 168 and 176)

1.  When a financial leasing contract relating to a motor vehicle provides either that ownership of that vehicle is to be transferred to the lessee on the expiry of that contract or that the lessee is to possess all the essential powers attaching to ownership of that vehicle and, in particular, that substantially all the rewards and risks incidental to legal ownership of that vehicle are transferred to the lessee and that the present value of the amount of the lease payments is practically identical to the market value of the property, the transaction must be treated as the acquisition of capital goods.

   (see para. 40)

2.  On a proper construction of Article 168(a) of Directive 2006/112 on the common system of value added tax, a leased motor vehicle is to be regarded as used for the purposes of the taxable person’s taxed transactions if there is a direct and immediate link between the use of that vehicle and the taxable person’s economic activity. The time when the right to deduct arises and when it is necessary to take into account the existence of such a link is on the expiry of the period to which each payment relates.

   Further, a motor vehicle leased under a financial leasing contract and placed in the category of capital goods is to be regarded as used for the purposes of taxed transactions if the taxable person acting as such acquires that vehicle and allocates it entirely to the assets of his undertaking, input value added tax payable being fully and immediately deductible, and any use of that vehicle for the taxable person’s private purposes or for those of his staff or for purposes other than those of his undertaking being treated as a supply of services carried out for consideration. It is the acquisition of the goods by a taxable person acting as such that determines the application of the value added tax system and therefore of the deduction mechanism. The use to which the goods are put, or intended to be put, merely determines the extent of the initial deduction to which the taxable person is entitled. The question whether a taxable person has acquired goods acting as such, that is, for the purposes of his economic activity within the meaning of Article 9 of the directive, is a question of fact that must be determined in the light of all the circumstances of the case, including the nature of the goods concerned and the period between the acquisition of the goods and their use for the purposes of the taxable person’s economic activity.

   (see paras 57, 58, 64, operative part 1)

3.  Articles 168 and 176 of Directive 2006/112 on the common system of value added tax do not preclude national legislation which provides for the exclusion from the right to deduct of goods and services intended to be supplied free of charge or for activities outside the scope of the taxable person’s economic activity, provided that goods categorised as capital goods are not allocated to the assets of the undertaking.

   (see para. 74, operative part 2)