VAT

CJEU clarifies how to calculate deductible VAT on costs incurred by a branch for the benefit of its head office

Court of Justice of the European Union. Judgment of January 24, 2019, case C-165/17

A judgment by the Court of Justice of the European Union (CJEU) examined the deductible proportion of VAT for a fixed establishment located in a member state on the services provided to its head office located in another member state and on any of the establishment’s costs that were incurred for both its own activities and those of the head office.

According to the court, the deduction must be calculated using a deductible proportion as follows:

1.In relation to the expenditure of the fixed establishment which is used for both taxed transactions and VAT-exempt transactions carried out by the establishment, the deductible proportion must be calculated as a fraction, having:

  • As numerator, the transactions carried out by the head office (and using the costs incurred by the fixed establishment) which are deductible if carried out in the member state where the fixed establishment is registered.
  • As denominator, the turnover (not including VAT), resulting from the transactions carried out by the head office and using the costs incurred by the branch.

2.Regarding the establishment’s overheads, which contribute to both the fixed establishment’s transactions and to the transactions of the head office:

  • As numerator, both the taxed transactions carried out by the establishment and the taxed transactions carried out by the head office which also are deductible if they are carried out in the state where the establishment is registered.
  • As denominator, the transactions carried out by both the establishment and the head office.

Administrative procedure

Delay in deciding a contradictory expert appraisal procedure does not mean acceptance of the taxpayer’s valuation

Supreme Court. Judgment of January 17,2019

The Supreme Court examined a case in which a procedure to submit a contradictory expert appraisal was initiated after being applied for by the person with tax obligations, who filed the relevant appraisal report with the application. The authorities failed to deliver their decision within the time limit and to produce the appraisal contradicting that produced by the person with tax obligations.

The Supreme Court recalled that a contradictory expert appraisal, even if initiated by a person with tax obligations, is an administrative procedure for management, collection and audit of taxes, and therefore the tax authorities have an obligation to decide within six months.

It clarified, however, that the tax authorities’ failure to meet the time limit does not mean that the appraisal by the expert relied on by the person with tax obligations prevails or is confirmed as a result of approval by administrative silence.

Administrative procedure

Where the tax authorities have been using email to send notices, they must carry on using them in later communications

Catalonia High Court. Judgment of June 15, 2018

In the examined case, the authorities had been sending notification notices to the person with tax obligations by email to their enabled electronic address. They failed to send that notice in relation to one notification, however, resulting in the taxable person not opening it in the time limit.

In this context, Catalonia High Court held in this judgment that the sending of notification notices by email gave the taxable person legitimate expectations that later notifications would also be accompanied by email notices. Therefore, the notification made to the person with tax obligations without sending a prior notice must be held defective.