Keywords
Summary

Keywords

1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax

(Council Directive 77/388, Art. 17(3)(a))

2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Exclusions from the right of deduction

(Council Directive 77/388, Art. 17(3)(a))

Summary

1. Article 17(3)(a) of Sixth Directive 77/388, on the harmonisation of the laws of the Member States relating to turnover taxes, must be interpreted as meaning that a Member State may not refuse to allow a taxable person to deduct input value added tax paid on the acquisition of goods in that Member State, when those goods have been used for the purposes of leasing transactions carried out in another Member State, solely on the ground that the output transactions have not given rise to the payment of value added tax in the second Member State.

Under Article 17(3)(a), the right to deduct input value added tax for certain transactions in respect of other output transactions carried out in another Member State depends on whether that right to deduct exists when all those transactions are carried out within the territory of the same Member State. Consequently, the fact that a Member State has not collected output value added tax because of the manner in which it has categorised a commercial transaction cannot deny a taxable person the right to deduct input value added tax paid in another Member State.

(see paras 32, 42, 46, operative part 1)

2. The principle of prohibiting abusive practices does not preclude the right to deduct value added tax – recognised in Article 17(3)(a) of Sixth Directive 77/388, on the harmonisation of the laws of the Member States relating to turnover taxes – in circumstances in which a company established in one Member State elects to have its subsidiary, established in another Member State, carry out transactions for the leasing of goods to a third company established in the first Member State, in order to avoid a situation in which value added tax is payable on the sums paid as consideration for those transactions, the transactions having been categorised in the first Member State as supplies of rental services carried out in the second Member State, and in that second Member State as supplies of goods carried out in the first Member State.

Taxable persons are generally free to choose the organisational structures and the form of transactions they consider to be most appropriate for their economic activities and for the purposes of limiting their tax burdens. A trader’s choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the neutral system of value added tax. Where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability.

(see paras 53-55, operative part 2)