© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
M1. Input tax: general principles
GENERAL​
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Fundamental nature of the right to deduct
"[34] In this regard, it should be recalled that, according to settled case law, the right of taxable persons to deduct from the VAT they owe the VAT due or paid on goods acquired and services received by them upstream constitutes a fundamental principle of the common VAT system. As the Court has repeatedly held, the right to deduct provided for in Articles 167 et seq. of the VAT Directive forms an integral part of the VAT mechanism and cannot, in principle, be limited provided that the substantive and formal requirements or conditions to which this right is subject are met by taxable persons wishing to exercise it (Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 40 and the case law cited)." (Granulines Invest C-270/24)
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- Irrelevant whether supplier has paid over the output tax to tax authority
"[36] Whether or not VAT due on previous or subsequent sales of the goods in question has been paid to the Treasury is irrelevant to the taxable person's right to deduct input VAT. VAT applies to each production or distribution transaction, less the tax directly levied on the cost of the various components of the price (Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 42 and the case law cited)." (Granulines Invest C-270/24)
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Inputs acquired by taxable person from taxable for use for taxed transactions
"[28] More specifically, it is apparent from Article 168 of the VAT Directive that, in order to enjoy a right of deduction, two conditions must be met. First, the person concerned must be a ‘taxable person’ within the meaning of the directive. Secondly, the goods or services relied on to confer entitlement to that right must be used by the taxable person for the purposes of his or her own taxed output transactions and, as inputs, those goods or services must be supplied by another taxable person (see, to that effect, judgment of 8 September 2022, Finanzamt R (Deduction of VAT linked to a shareholder contribution), C‑98/21, EU:C:2022:645, paragraph 39 and the case-law cited)." ​(Feudi C-341/22)
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- Transaction must have taken place
"[26] Consequently, the fictitious nature of the delivery of goods or the provision of services is sufficient to deprive the recipient of the invoice relating thereto of the right to obtain the deduction of VAT.
[27] The question of whether the taxable person knew or should have known that he was participating in an operation involved in VAT fraud arises only, if applicable, when all the material and formal conditions of the right to deduct are met." (Klinka-Geo C-501/24)
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- Use depends on direct and immediate link
"[29] Regarding the second condition, which is the only condition concerned by the present question, it should be borne in mind that, before the taxable person is entitled to deduct input VAT, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is, in principle, necessary. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them is a component of the price of the output transactions giving rise to the right to deduct (judgment of 8 September 2022, Finanzamt R (Deduction of VAT linked to a shareholder contribution), C‑98/21, EU:C:2022:645, paragraph 45 and the case-law cited).
[30] However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the goods and services in question are part of his or her general costs and are, as such, components of the price of the goods or services which he or she supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (see, to that effect, judgment of 12 November 2020, Sonaecom, C‑42/19, EU:C:2020:913, paragraph 42 and the case-law cited)." ​(Feudi C-341/22)
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See further: M2. Direct and immediate link
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- Need not intend to use goods in economic activity immediately
"[25] In this regard, it should be borne in mind that an individual who acquires goods for the purposes of an economic activity within the meaning of that provision does so as a taxable person, even if the goods are not used immediately for that economic activity (see Case C‑97/90 Lennartz [1991] ECR I‑3795, paragraph 14)." (SC Gran Via Moineşti C-257/11)
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- No threshold level of outputs in order to be able to deduct
"[31] It follows from the foregoing considerations that no provision of the VAT Directive makes the right of deduction conditional on a requirement that the amount of output transactions subject to VAT, carried out by a taxable person during a given period, must reach a certain threshold. On the contrary, it follows from the case-law cited in paragraph 27 of the present judgment, that the right to deduct VAT is ensured, subject to satisfaction of the necessary conditions which it is for the referring court to ascertain, irrespective of the results of the economic activities of the taxable person concerned." (Feudi C-341/22)
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- Irrelevant whether output tax paid by supplier
"[44] The Court has previously held that the question whether the VAT on an earlier or later sale of the goods concerned has or has not been paid to the public purse is irrelevant to the right of the taxable person to deduct input VAT (judgment of 12 January 2006, Optigen and Others, C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 54). As the Direktor claimed, requiring the company concerned to actually pay the VAT due constitutes, for that company, an obstacle to deduction of the input VAT, since it requires that company to commit funds and obliges the tax authorities to return those funds when it re-registers, whereas other traders who hold assets may use them for their economic activities without being required to make such payment." (Wind Inovation 1 C-552/16)
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Only input tax that was actually chargeable may be deducted
"[13] It must be inferred from the changes made to the abovementioned provisions that the right to deduct may be exercised only in respect of taxes actually due, that is to say, the taxes corresponding to a transaction subject to VAT or paid in so far as they were due.
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[19] The answer to the first question should therefore be that the right to deduct provided for in the Sixth Council Directive, 77/388/EEC, of 17 May 1977 does not apply to tax which is due solely because it is mentioned on the invoice." (Genius Holding BV C-342/87)
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- Concessionary relief for customer who acted in good faith in deducting improperly charged VAT
"If a VAT registered customer has treated as input tax, an amount charged incorrectly as VAT on an invoice issued by an unauthorised person and deducted it in good faith, and providing a supply has taken place, recovery from the customer of the amount deducted may be remitted and the amount pursued from the supplier." (VAEC9670)
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TIMING OF DEDUCTION​
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- Right arises when tax charged, but exercisable only when invoice held
"[43] It follows from the foregoing that, as the Advocate General observed at point 58 of his Opinion, although, under Article 167 of Directive 2006/112, the right to deduct VAT arises at the same time as the tax becomes chargeable, Article 178 of that directive provides that it can be exercised onlyonce the taxable person holds an invoice (see, to that effect, judgment of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 35 and the case-law cited)."​(Volkswagen AG C-533/16)
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DEDUCTION WITHOUT COMPLIANT INVOICE​
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- Member States may authorise deduction without invoice
"[45] Nevertheless, pursuant to Articles 180 and 182 of that directive, a taxable person may be authorised to make a VAT deduction even if he did not exercise his right during the period in which the right arose, subject, however, to compliance with the conditions and procedures determined by national legislation (judgment of 28 July 2016, Astone, C‑332/15, EU:C:2016:614, paragraph 32 and the case-law cited)." ​(Volkswagen AG C-533/16)
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TIME LIMIT FOR DEDUCTION​
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- Time limit cannot run from period prior to T having invoice
"[49] In the present case, it is apparent from the order for reference that, even though the supply of goods at issue was carried out during 2004 to 2010, the Hella Companies did not make an adjustment of the VAT until 2010 when they drew up invoices including the VAT, sent supplementary tax returns to the competent national authority and paid the amount of VAT that was due to the State treasury. It is equally apparent that the risk of tax evasion or non-payment of VAT has been excluded. In these circumstances, it was objectively impossible for Volkswagen to exercise its right to a refund before this adjustment, as, prior to that, it had neither been in possession of the invoices nor aware that the VAT was due.
[50] Indeed, it was only following that adjustment that the substantive and formal conditions giving rise to a right to deduct VAT were met and that Volkswagen could therefore request to be relieved of the VAT burden due or paid, in accordance with Directive 2006/112 and the principle of fiscal neutrality. Accordingly, since Volkswagen did not demonstrate a lack of diligence, and in the absence of an abuse or fraudulent collusion with the Hella Companies, a limitation period which began from the date of supply of the goods and which, for certain periods, expired before this adjustment, cannot validly deny Volkswagen the right to a refund of VAT." ​(Volkswagen AG C-533/16)
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SUBSTANTIVE AND FORMAL CONDITIONS​
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Deduction to be allowed if substantive conditions met
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- The principle
"[32] It should be recalled that, under settled case-law of the Court, the identification as provided for under Article 214 of Directive 2006/112 and the obligations stipulated under Article 213 are only formal requirements for the purposes of control, and they cannot undermine, inter alia, the right of deduction or the right of exemption from VAT for an intra-Community supply, where the substantive conditions which give rise to these rights are satisfied (see, to that effect, Nidera Handelscompagnie, paragraph 50; Case C-263/11 RÄ“dlihs [2012] ECR, paragraph 48; and Mecsek-Gabona, paragraph 60)." (Ablessio C-527/11)
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"[43] In addition, the Court has held that the principle of VAT neutrality requires that deduction of input tax be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements. Where the tax authority has the information necessary to establish that the taxable person is, as the recipient of the supplies in question, liable to VAT, it cannot impose, in relation to the taxable person’s right to deduct that tax, additional conditions which may have the effect of rendering that right ineffective (see, as regards the reverse charge procedure, Case C-385/09 Nidera Handelscompagnie [2010] ECR I-10385, paragraph 42)." (Polski Trawertyn C-280/10)
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"[42] In addition, the Court has held, in the context of the reverse charge procedure, that the principle of VAT neutrality requires deduction of input tax to be allowed if the substantive requirements are satisfied, even if the taxable person has failed to comply with some of the formal requirements (Joined Cases C-95/07 and C-96/07 Ecotrade [2008] ECR I-3457, paragraph 63, and Case C-392/09 Uszodaépítö [2010] ECR I‑0000, paragraph 39). Where the tax authority has the information necessary to establish that the taxable person is, as the recipient of the supplies in question, liable to VAT, it cannot impose, in relation to the right of that taxable person to deduct that tax, additional conditions which may have the effect of rendering that right ineffective (Ecotrade, paragraph 64, and Uszodaépítö, paragraph 40)." (Nidera C-385/09)
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However:
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"[40] ​The right to deduct VAT is, however, subject to compliance with both substantive and formal requirements or conditions (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 38)." ​(Volkswagen AG C-533/16)
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- Right to deduct not to be denied where goods delivered and used for taxable transactions
"[40] As regards the main proceedings, it is undisputed that the goods mentioned on the invoice issued by Castor Fit were delivered to Granulines Invest. It also appears from the case file before the Court that the Hungarian tax authorities did not contest either Granulines Invest's taxable status or the fact that the goods thus delivered were used for the purposes of the latter's taxable transactions. Nor did the tax authorities challenge Castor Fit's taxable status.
[41] Since the deliveries of the goods in question in the main proceedings have been made and have been used downstream by Granulines Invest for the purposes of its taxable operations, the benefit of the right to deduct cannot, in principle, be denied to the latter." (Granulines Invest C-270/24)
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- Unless right being relied on fraudulently or abusively
"[42] That being said, the fight against fraud, tax evasion and potential abuse is an objective recognised and encouraged by the VAT Directive, and the Court has repeatedly held that individuals may not fraudulently or abusively rely on EU law. Therefore, it is for national authorities and courts to refuse the benefit of the right to deduct VAT if it is established, based on objective evidence, that this right is being invoked fraudulently or abusively (Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 50 and the case law cited)." (Granulines Invest C-270/24)
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​See B3. Supply chain fraud
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- Cannot limit enquiry to information on invoice itself
"[66] In this regard, the tax authorities cannot limit themselves to examining the invoice itself. They must also take into account the additional information provided by the taxable person. This is confirmed by Article 219 of the VAT Directive, which treats as an invoice any document or message that modifies the original invoice and refers to it specifically and unambiguously (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 44)." (Granulines Invest C-270/24)
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- Proportionate penalties for non-compliance with formal requirements
"[72] Finally, it should be recalled that Member States are competent to provide for sanctions in the event of non-compliance with the formal conditions relating to the exercise of the right to deduct VAT. Under Article 273 of the VAT Directive, Member States may adopt measures to ensure the correct collection of the tax and to prevent fraud, provided that such measures do not go beyond what is necessary to achieve such objectives or undermine the neutrality of VAT (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 47 and the case-law cited).
[73] In particular, EU law does not prevent Member States from imposing, where appropriate, a fine or a pecuniary penalty proportionate to the seriousness of the infringement in order to penalize failure to comply with formal requirements (judgment of 15 September 2016, Barlis 06 – Investimentos Imobiliários e Turísticos, C-516/14, EU:C:2016:690, paragraph 48 and the case law cited)." (Granulines Invest C-270/24)
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Substantive requirements
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- (1) Acquisition by taxable person; (2) from taxable person; (3) use for taxed outputs
"[37] The right to deduct VAT is nevertheless subject to compliance with both substantive and formal requirements or conditions. As regards the substantive requirements or conditions, it is clear from Article 168(a) of the VAT Directive that, in order to benefit from this right, it is necessary, firstly, that the person concerned be a "taxable person" within the meaning of that directive, and, secondly, that the goods or services invoked to establish the right to deduct VAT be used downstream by the taxable person for the purposes of their own taxable transactions and that, upstream, these goods be supplied or these services be rendered by another taxable person..." (Granulines Invest C-270/24)
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"[41] With regard to the substantive requirements or conditions, it is apparent from the wording of Article 168(a) of Directive 2006/112 that, in order to have a right to deduct, it is necessary, first, that the interested party be a ‘taxable person’ within the meaning of that directive and, second, that the goods or services relied on to confer entitlement to the right to deduct VAT be used by the taxable person for the purposes of his own taxed output transactions, and that, as inputs, those goods or services must be supplied by another taxable person (see, to that effect, judgments of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 28 and the case-law cited, and of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 39)." ​(Volkswagen AG C-533/16)
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- Substantive conditions only met if supply actually carried out
"[39] The substantive conditions to which the right to deduct is subject are met only if the supply of goods or the provision of services to which the invoice relates has actually been carried out (Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 46)." (Granulines Invest C-270/24)
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Formal requirements (invoice)
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- Holding compliant invoice is formal condition
"[37]...As regards the modalities of exercising the right to deduct VAT, which are akin to formal requirements or conditions, Article 178(a) of the VAT Directive provides that the taxable person must hold an invoice drawn up in accordance with the requirements set out in that directive (see, to that effect, Order of 3 September 2020, Vikingo FÅ‘vállalkozó, C-610/19, EU:C:2020:673, paragraph 43 and the case law cited)." (Granulines Invest C-270/24)
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"[42] As to the detailed rules governing the exercise of the right to deduct, which may be considered formal requirements or conditions, Article 178(a) of Directive 2006/112 provides that the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive (judgment of 19 October 2017, Paper Consult, C‑101/16, EU:C:2017:775, paragraph 40)." (Volkswagen AG C-533/16)
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"[47] By virtue of Article 178(a) of Directive 2006/112, exercise of the right of deduction pursuant to Article 168(a) thereof is subject to the single formal requirement that, in respect of the supply of goods or services, the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238, 239 and 240 of the Directive." (Nidera C-385/09)
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- Information required to be in invoice may legitimately be established by other means
"[48] The Court has held, second, that, while it is true that an invoice has an important documentary function because it may contain verifiable data, there are circumstances in which the data may be legitimately established by means other than by an invoice and where the requirement to have an invoice in full conformity with the provisions of Directive 2006/112 would be capable of affecting the right of a taxable person to deduct (see, to that effect, Case C-90/02 Bockemühl [2004] ECR I-3303, paragraphs 51 and 52).
[49] However, it should be noted that, as is apparent from the decision for reference, in a situation such as that at issue in the main proceedings, the data necessary to ensure a reliable and efficient collection of VAT is established." (Polski Trawertyn C-280/10)
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- Invoice addressed to partner rather than partnership
"[45] As the inability of Polski Trawertyn to exercise its right to deduct the input tax paid arises from the fact that, at the date of issue of the invoice relating to the acquisition, that partnership was not yet registered or identified for the purposes of VAT and the invoice had, therefore, been drawn up in the name of the partners, even though, as the national court found, those who paid the input tax and those who make up Polski Trawertyn are one and the same legal entity, that inability must be considered to result from a purely formal obligation.
[46] As the Advocate General stated at point 72 of his Opinion, compliance with such an obligation cannot be required where, in a situation such as that at issue in the main proceedings, that requirement would have the effect of rendering that right of deduction ineffective, and therefore call into question the neutrality of VAT." (Polski Trawertyn C-280/10)
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- Rectification of invoice not a condition where information verifying substantive conditions met provided
"[70] In this regard, it should be considered, in response to the second question, under (a), that, where an invoice does not meet the requirements of Article 226(7) of the VAT Directive, its rectification cannot constitute a condition for exercising the right to deduct VAT, where the taxable person has provided the information enabling verification that the substantive conditions relating to the exercise of that right are met (see, to that effect, Order of 13 December 2018, Mennica Wrocławska, C-491/18, EU:C:2018:1042, paragraph 45).
[71] It is therefore for the referring court, if it finds that the invoice relating to the supply of the goods at issue in the main proceedings does not meet the requirements of Article 226(7) of the VAT Directive, to verify whether Granulines Invest has provided the information necessary to determine the correct date of delivery. If so, and the substantive conditions for exercising the right to deduct VAT are met, it is that latter date that must be taken into account to determine the date on which the right to deduct VAT arises, in accordance, in particular, with Article 167 of that Directive.
" (Granulines Invest C-270/24)
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Formal requirements (other)
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- Registration with tax authority/notice of commencing economic activity - formal requirement for purposes of verification
"[48] Indeed, there is also an obligation on taxable persons to state when their activity commences, changes or ceases, in accordance with the measures adopted to that end by the Member States, pursuant to Article 213 of Directive 2006/112. However, the Court has already held that that in no way authorises Member States, in the event of such a declaration not being submitted, to defer the exercise of the right to deduct until the time at which taxable transactions actually begin to be carried out on a regular basis, or to deprive the taxable person of that right (see, by analogy, Joined Cases C‑110/98 to C‑147/98 Gabalfrisa and Others [2000] ECR I-1577, paragraph 51).
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[50] In consequence, the identification provided for in Article 214 of Directive 2006/112, in the same way as the obligations laid down in Article 213 of that directive, cited in paragraph 48 of the present judgment, is not a measure giving rise to the right of deduction – a right which arises at the time when the deductible tax becomes payable – but constitutes a formal requirement for the purposes of verification." (Nidera C-385/09)
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- Deduction cannot be denied on basis of failure to register prior to use of inputs
"[33] It follows from this case-law that the registration of a taxable person in the register of taxable persons subject to VAT is a formal requirement, such that a taxable person cannot be prevented from exercising his right of deduction on the ground that he had not been identified as a taxable person for VAT purposes before using the goods purchased in the context of his taxed activity (see, to that effect, Nidera Handelscompagnie, paragraph 51, and Dankowski, paragraphs 33, 34 and 36). Therefore, the refusal to assign a VAT identification number cannot, in principle, have any effect on the taxable person’s right to deduct input VAT if the material conditions giving rise to that right have been fulfilled." (Ablessio C-527/11)
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"[51] It follows from the foregoing that a taxable person for VAT purposes cannot be prevented from exercising his right of deduction on the ground that he had not been identified as a taxable person for those purposes before using the goods purchased in the context of his taxed activity." (Nidera C-385/09)​
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- But time limit can be imposed on requirement to register and claim deduction
"[52]...In addition, as the Commission rightly observed, if exercise of the right of deduction of VAT were not limited as to time, legal certainty would not be fully possible. The obligation on taxable persons to identify themselves for VAT purposes would be rendered meaningless if the Member States were not entitled to impose a reasonable time-limit in that regard.
[53] In the main proceedings, nevertheless, it appears that Nidera was not obliged to identify itself as a taxable person for VAT purposes in Lithuania, in accordance with Article 71(3) of the PVMÄ®, even though under Article 63(1) of that Law taxable persons cannot deduct VAT unless they have taken that step. In as much as it was thus necessary for Nidera to identify itself as a taxable person for VAT purposes in order to exercise its right of deduction, it must be held that it did so less than six months after having completed the transactions which gave rise to that right and, accordingly, within a reasonable period of time." (Nidera C-385/09)
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