On 9 March 2011, the Federal Tax Court (BFH) published three landmark decisions on the relationship between the VAT treatment of the withdrawal/sale of goods/investments and the recovery of input VAT. In all three cases, the BFH emphasizes that input VAT may be claimed if the business uses the goods or services supplied to it for particular output transactions. The output transactions must be carried out by a business for consideration, the transactions must either be taxable or zero rated (i.e. VAT exempt with an input VAT credit) and there must be a direct link between the transactions (indirectly pursued purposes are irrelevant).
Of particular interest is the decision of 27 January 2011 (case reference: V R 38/09), which involved an industrial company that was, in principle, pursuing a fully taxable business, i.e. transactions that allow a full input VAT recovery. The company sold a stake in an affiliated company in a VAT-exempt transaction. At issue was whether the company was:
- entitled to credit input VAT from consulting services it received with respect to the sale of the participation in the affiliate (due to its generally taxable business activity); or
- not entitled to credit input VAT (due to the direct link with the VAT-exempt sale of the shares/investment).
The BFH denied the input VAT recovery on the basis of the direct link between the consulting services received and the VAT-exempt sale of the investment. The fact that the company used the proceeds from the VAT-exempt sale of the stake in the affiliate for its general taxable sales activities is not sufficient since this was merely an indirect purpose.
For further information please contact Sonja Wiesner or your regular Deloitte indirect tax contact.
