Input VAT deduction for provided machinery: ECJ ruling C-475/23

7 November 2024

The following describes the expenses for the provision of machines that are entitled to input VAT deduction in relation to the ECJ ruling ‘Voestalpine Giesserei Linz GmbH’ of 4 October 2024, C-475/23. A right to deduct input VAT only exists if the expenses have a direct and immediate link to taxed output transactions or to general expenses. The ECJ has now addressed the question of whether input VAT can be deducted from the purchase of goods that are provided to another trader for the provision of a service.

Facts (slightly simplified)

Voestalpine Giesserei Linz GmbH (VGL for short) had cast parts processed by a company in Romania. VGL provided a piece of land it owned in Romania and a crane for this purpose. The crane was essential for processing the castings because they weighed more than 10 tons. VGL sold the processed castings from Romania and was therefore registered there for VAT purposes.

The Romanian tax office denied VGL the input VAT deduction from the purchase of the crane, arguing that VGL had not used it to carry out VAT taxable transactions, but to provide it free of charge. The input VAT deduction was also to be denied because VGL had not kept separate records for its permanent establishment in Romania.

ECJ ruling: right to input tax deduction exists

The ECJ first emphasised the importance of input VAT deduction as an integral part of the VAT system to ensure complete neutrality. Accordingly, input VAT deduction must be granted if the purchase of the crane is directly and immediately linked to taxed output transactions or the entire economic activity of VGL. Although this is a matter for the referring court to examine, it is irrelevant that the crane also benefited the job processor. Rather, the decisive factor is that the acquisition of the crane was indispensable for VGL and that it would not have been able to carry out its economic activity without the crane. Ultimately, it depends on whether the provision of the crane was limited to what was necessary to ensure the processing of the castings or whether it went beyond what was necessary for this purpose.

The fact that VGL had not kept separate records for the Romanian permanent establishment was not per se detrimental to the input VAT deduction as long as the tax authorities were able to check the material requirements for the input VAT deduction.

Classification

The judgement comes as no surprise when you consider that VGL would have been entitled to deduct input tax if it had carried out the processing of the castings itself and purchased the crane for this purpose. Outsourcing the processing should not change this. The fact that the provision of the crane must not exceed what was necessary for the processing of the castings is in line with recent ECJ case law on the subject, e.g. "Mitteldeutsche Hartsteinindustrie". Consequently, the input VAT deduction from the acquisition costs for the crane would probably only be granted on a pro rata basis if the processing company was allowed to use the crane for other purposes.