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World Journal of VAT/GST Law Volume 3, 2014 - Issue 2
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Original Articles

The direct and immediate link test regarding deduction of input VAT: a consumption-based test versus an economic-based test?

Dennis Ramsdahl Jensen Professors at Aarhus University, Denmark.
&
Henrik Stensgaard Professors at Aarhus University, Denmark.
Pages 71-87 | Published online: 07 May 2015

  • Council Directive (EEC) 67/227 of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes [1967] OJ 71/1031 (First VAT Directive).
  • This description is now carried on in Article 1 of the current VAT Directive (Council Directive (EC) 2006/112 of 28 November 2006 on the common system of value added tax, [2006] OJ L347/1 (ECVD)).
  • See also Ad van Doesum and Gert-Jan van Norden, ‘The Right to Deduct under EU VAT’ [2011] International VAT Monitor 323.
  • See Case C-29/08 AB SKF [2009] ECR I-10413, para 57.
  • See Case C-408/98 Abbey National [2001] ECR I-1361, para 35; AB SKF (n 4) para 58.
  • In this context the terms ‘overhead cost’ and ‘general costs’ are regarded as synonyms. See differently van Doesum and van Norden (n 3).
  • See eg Ad van Doesum, Herman van Kesteren and Gert-Jan van Norden,'share Disposals and the Right of Deduction of Input VAT' (2010) 2 EC Tax Review 64; John Watson, Tom Cartwright and Eleanor Dixon, ‘A Recipe for Chaos' [2010] May/June International VAT Monitor 183; Dennis Jensen and Henrik Stensgaard, ‘The Distinction between Direct and General Costs with Regard to the Deduction of Input VAT: The Case of Acquisition, Holding and Sale of Shares' (2012) 1 World Tax Journal 3.
  • Case C-104/12 Becker [2013] ECR I-0000.
  • Case C-651/11 X BV [2013] ECR I-0000.
  • In this context the term ‘exempt’ refers to supplies covered by Arts 132, 135 and 136 ECVD.
  • Case C-184/04 Uudenkaupungin Kaupunki [2006] ECR I-3039, para 24.
  • See Caroline Heber, ‘Issues of Shares and Partnership Interests, and the Look-Through Approach within the Scope of VAT and GST’ (2013) 2 World Journal of VAT/GST Law 24; Joachim Englisch, ‘The Share Deal as a Non-Taxable Transaction’ in Thomas Ecker, Michael Lang and Ine Lejeune (eds), The Future of Indirect Taxation (Kluwer, 2012) 567; Chris Bates and Julia Lloyd, ‘Skatteverket v AB SKF: A New Approach to VAT Recovery on a Share Sale' (2010) 1 British Tax Review 31; van Doesum et al (n 7) 73.
  • See also Watson et al (n 7).
  • Becker (n 8).
  • Case C-4/94 BLP [1995] ECR I-983.
  • See also the German Finanzamt's considerations, as they are referred to in Becker (n 8) para 15.
  • Becker (n 8) para 32.
  • Ibid, paras 19–20.
  • In this context the ECJ referred to Case C-98/98 Midland Bank [2000] ECR I-4177, para 24 and Abbey National (n 5) para 23, and finally to Case C-435/05 Investrand [2007] ECR I-1315, para 23.
  • In this context the ECJ referred to Midland Bank (n 19) para 31 and Case C-465/03 Kretztechnik [2005] ECR I-4357, para 36.
  • Becker (n 8) para 21.
  • Midland Bank (n 19) para 25.
  • Becker (n 8) para 22.
  • BLP (n 15) para 24. Reference was also made to Case C-108/99 Cantor Fitzgerald [2001] ECR I-7257, para 33 and AB SKF (n 4) para 47.
  • BLP (n 15) paras 3 and 12.
  • Ibid, para 4.
  • Ibid, Opinion of AG Lenz, para 16.
  • Ibid, para 15.
  • Ibid, para 28 (emphasis added).
  • Now Art 173(1) ECVD.
  • Council Directive (EC) 77/388 of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes—Common system of value added tax: uniform basis of assessment [1977] OJ L145/1 (Sixth VAT Directive).
  • Now Art 168 ECVD.
  • BLP (n 15) para 19 (emphasis added). This argumentation is repeated in a large number of later cases. See eg Midland Bank (n 19) para 20.
  • BLP (n 15) paras 20–21.
  • See similarly Cantor Fitzgerald (n 24) para 33 and AB SKF (n 4) para 47.
  • Becker (n 8) para 23.
  • Ibid, paras 30f.
  • X BV(n 9).
  • Now Art 135(1)(f) ECVD. See X BV (n 9) para 56.
  • Ibid, para 11.
  • Ibid, para 55.
  • Ibid, para 55.
  • Ibid, para 56.
  • See most notably AB SKF (n 4) paras 60 and 62.
  • BLP (n 15) Opinion of AG Lenz, para 24.
  • Ibid, paras 16 and 27.
  • Ibid, para 36.
  • Ibid, para 37.
  • X BV (n 9) paras 55 and 56.
  • See also AB SKF (n 4) paras 60 and 62 (emphasis added).
  • Case C-16/00 Cibo Participation [2001] ECR I-6663, paras 31 and 33; AB SKF (n 4) para 60; Case C-118/11 Eon Aset Menidjmunt [2012] ECR I-0000, para 48; and Becker (n 8) paras 19–20.
  • See Case C-26/12 PPG [2013] ECR I-0000, para 18.
  • See Ibid, Opinion of AG Sharpston, para 20.
  • Ibid, para 22
  • Ibid, para 23.
  • Ibid, paras 24–25.
  • See Ibid, Opinion of AG Sharpston, para 28 (emphasis added).
  • Ibid, paras 22 and 23.
  • The right to deduct can, however, be restricted due to explicit provisions in the legislation (Art 176 ECVD). The self-supply rules of the VAT Directive may also be applicable.
  • For a potentially different view see Heber (n 12).
  • See Kretztechnik (n 20).
  • See also Joachim Englisch, ‘The EU Perspective on VAT Exemptions' in Rita de la Feria (ed), VAT Exemptions (Wolters Kluwer, 2013) 37ff; van Doesum and van Norden (n 3); Peter Melz, ‘Activities Outside the Scope of VAT and Exempt Activities' [2011] September International VAT Monitor 331.

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