The input VAT on assets provided free of charge to the subcontractor is deductible according to the ECJ
C‑475/23. – Voestalpine Giesserei Linz GmbH | The value-added tax related to the acquisition of assets provided free of charge to the subcontractor can also be deducted if the subcontractor uses the asset to the extent necessary for the economic activity of the company providing the asset.
The plaintiff in the case (VGL) is an Austrian-based company producing various moulded parts. VGL has a fixed establishment in Romania and it processes those parts in Romania. For this purpose, VGL entered into a contract with another Austrian company (Austrex), which commissioned a Romanian subcontractor. VGL sold the finished product from Romania. To facilitate its metal processing activities in Romania, VGL provided a property in Cluj free of charge to Austrex and a crane to the Romanian subcontractor, which was installed at the aforementioned property in Cluj.
VGL claimed the VAT incurred on the acquisition of the crane in its Romanian VAT return, resulting in a recoverable VAT. The Romanian tax authority denied the VAT deduction for two reasons. First, it claimed that the use of the crane serves the economic activity of the local subcontractor, not of VGL. Secondly, it objected that VGL had not drawn up accounting statements in Romania, which would allow for the verification of how the deductible VAT in Romania is related to VGL’s taxable economic activity there.
According to the ruling of the European Court of Justice (ECJ) in case C-475/23, the mere fact that the subcontractor might benefit from the use of the crane does not disrupt the direct and immediate link between the acquisition of the crane and VGL’s economic activity; rather, it is determining whether the costs of acquiring and providing the crane for use are directly or indirectly included into the price of VGL’s products. The ECJ also stated in its ruling that if the tax authority is able to verify the existence and scope of the right to deduct VAT, it cannot refuse the VAT deduction on the ground that the taxable person did not keep separate accounts for its fixed establishment in that Member State.
