On 6 September 2012 new case has been issued by the European Court (shortly after the Mahageben case nr. C142-11). In this new case the European Court has emphasized the below principles:
1. According to settled case-law, the right of taxable persons to deduct the VAT due or already paid on goods purchased and services received as inputs from the VAT which they are liable to pay is a fundamental principle of the common system of VAT established by the relevant European Union legislation.
2. As the Court has repeatedly held, the right to deduct provided for Directive 2006/112 is an integral part of the VAT scheme and in principle may not be limited. In particular, the right to deduct is exercisable immediately in respect of all the taxes charged on transactions relating to inputs.
3. The deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT.
4. Moreover, the Court has held that any failure by the service provider to meet the requirement to state when taxable activity commences cannot call in question the right of deduction to which the recipient of services supplied is entitled in respect of the VAT paid for those services. Accordingly, that recipient has a right to deduct even if the service provider is a taxable person who is not registered for VAT.
5. Therefore the principle of tax neutrality must be interpreted as meaning that they preclude the tax authority from refusing a taxable person the right to deduct VAT due or paid for services provided to him solely on the ground that the business operator’s license of the issuer of the invoice had been withdrawn before he provided the services in question or issued the invoice for them, where that invoice contains all the information required by Article 226 of Directive 2006/112, in particular the information necessary to identify the person who drew up the invoice and the nature of the services supplied.
To summarize the above it is against the statutory regulations and the VAT principles if the Tax Authority refuses the tax deduction right due to formal reasons (or with reasoning that the supplier has not paid the VAT). Therefore if the parties have not performed tax fraud or other non legislative transaction the VAT deduction right cannot be limited.
Therefore this case can be used against the practice of the Tax Authority when the deduction right is refused only for formal reasons.
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