The Court of Justice of the European Union (CJEU) has clarified the conditions under which an importer of goods can deduct input VAT. The CJEU ruled that an importer may not deduct input VAT unless three specific conditions are met:
(i) the importer must bear the cost of importation,
(ii) the importer must have the right to dispose of the imported goods as if they were the owner, and;
(iii) the cost of importation must be a component of the prices charged for the importer’s own downstream taxable supplies.
This ruling was made in the case of Weindel Logistik Service (C-621/19).
- Case Background
- Legal proceedings
- Referral to the CJEU
- CJEU's Reasoned Order
- Conclusion
Case Background
The taxpayer in this case was the consignee and declarant for goods imported into Slovakia from Switzerland, Hong Kong, and China. These goods were repackaged in Slovakia and then exported to a third country. Ownership of the goods remained with the third-country customer throughout the process. The taxpayer invoiced the repackaging services to the customer and was liable for import VAT when the goods were released for free circulation.
Upon accounting for the import VAT, the taxpayer also deducted the same tax. However, the Slovakian tax authorities refused this deduction, arguing that the taxpayer was neither the owner of the imported goods nor had the right to dispose of them as if they were the owner. Additionally, the authorities contended that the input tax was not directly and immediately linked to the taxpayer's economic activity, and that the taxpayer had not made taxable supplies by selling the goods in question.
Legal proceedings
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.
Referral to the CJEU
The Supreme Court of Slovakia referred several questions to the CJEU for a preliminary ruling:
- 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.
- 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.
- 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.
CJEU's Reasoned Order
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.
Conclusion
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.
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