Key criteria and case analysis

The taxpayer appealed the decision to the national courts, arguing that the right to deduct import VAT should not be conditional on ownership or the right to dispose of the goods as if they were the owner. The taxpayer maintained that the goods were imported for the purposes of their economic activity, and thus, the deduction should be allowed. 

The Slovakian tax authorities, however, insisted that the right to deduct import VAT was contingent upon acquiring ownership or the right to dispose of the goods as if the owner. They also argued that there must be a direct and immediate link between the importation of the goods and an eventual supply of goods or services, which they claimed was not present in this case. 

The Supreme Court of Slovakia referred several questions to the CJEU for a preliminary ruling: 

1. Whether the right to deduct VAT on imported goods is conditional on the right of ownership or the right to dispose of the goods as if the owner. 
2. Whether the right to deduct VAT arises only if the imported goods are used for the taxable person's taxable transactions, such as the sale of goods in the national territory, supply to another Member State, or export to a third country. 
3. Whether the condition of a direct and immediate link between the goods purchased and the output transaction is satisfied, and if the traditional interpretation of the right of deduction based on this link is applicable. 

The CJEU issued a Reasoned Order, addressing the first and second questions together. The Court reiterated its settled case-law that the right to deduct VAT requires inputs to be directly and immediately linked with the taxpayer's general economic activity or downstream taxable supplies. Citing previous cases such as Iberdrola (C-132/16) and Kretztechnik (C-465/03), the Court emphasised that deduction is permissible only when inputs are cost components of eventual downstream supplies. 

The CJEU also referred to its judgment in DSV Road (C-187/14), where it was determined that the deduction of input tax should be denied to a transporter of goods if the value of the goods being transported was not a cost component of the prices charged for transportation services. 

The Court agreed with the EU's VAT Committee that the taxable person who pays import VAT should be entitled to deduct it only if they obtain the right to dispose of the imported goods as if they were the owner and if the cost of the goods has a direct and immediate link with their economic activity. 

The CJEU concluded that an importer of goods cannot deduct import VAT unless they  

(i) bear the cost of importing the goods, 
(ii) acquire the right to dispose of the goods as if they were the owner, and 
(iii) incorporate the costs of importation into the price of their own taxable supplies.