(P) Tax Flash: Opinion of the Advocate General of the Court of Justice of the European Union on VAT adjustment
(Case C-234/11 TETS Haskovo AD “TETS”)
The case concerns the obligation of TETS to adjust input VAT deducted upon the acquisition of buildings used in the production of electricity, given that they are demolished for reconstruction and modernization of an existing power plant on that land.
According to the AG, the right to deduct VAT initially exercised is kept if there is a direct and immediate link with the taxable operations performed by the taxable person.
In the specific case of TETS, there is such a direct and immediate link based on the following grounds:
the building is purchased and demolished with the final purpose of giving rise to taxable operations by being exploited further to reconstruction / modernization;
even if the transaction does not turn into an actual subsequent exploitation, TETS retains the right to deduct VAT based on its intention to perform economic activities;
TETS charged output VAT on the sales of scrap resulting from demolition. In this regard, the AG reiterates the CJEU’s decision issued in previous cases, according to which the right to deduct VAT is not affected when the value of taxable transactions is considerably below the costs incurred.
The Romanian VAT legislation currently provides the obligation to adjust input VAT incurred on capital goods that cease to exist. At the same time, it retains the right to deduct VAT on purchase of goods and services which are no longer used in the taxable person’s economic activity due to objective reasons, independent of its will.
If the CJEU will follow AG’s opinion, the current provisions of the Romanian legislation regarding the adjustment of VAT for goods that cease to exist will, most probably, have to be revised.
It should also be analyzed the right to request the refund of VAT already paid in cases similar to TETS (in view of the principle of retroactive application of CJEU’s decisions within the preliminary ruling procedure).
By Venkatesh Srinivasan, Partner – Head of Tax and Legal, Ernst & Young Romania
(P) – this article is an advertorial
