© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
M3. Business purposes
Intention to use goods for mixture of business and non-business
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- Three options (full, partial or no recovery)
"[39] First, it must be pointed out that it is settled case-law that, where capital goods are used both for business and for private purposes the taxpayer has the choice, for the purposes of VAT, of (i) allocating those goods wholly to the assets of his business, (ii) retaining them wholly within his private assets, thereby excluding them entirely from the system of VAT, or (iii) integrating them into his business only to the extent to which they are actually used for business purposes (Case C-434/03 Charles and Charles-Tijmens [2005] ECR I‑7037, paragraph 23 and case-law cited, and Case C-72/05 Wollny [2006] ECR I‑8297, paragraph 21)." (Puffer C-460/07)
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- If treated as fully business goods, full recovery but obligation to account for VAT on non-business use
"[40] Should the taxable person choose to treat capital goods used for both business and private purposes as business goods, the input VAT due on the acquisition of those goods is, in principle, immediately deductible in full (Charles and Charles-Tijmens, paragraph 24, and Wollny, paragraph 22).
[41] However, it follows from Article 6(2)(a) of the Sixth Directive that when the input VAT paid on goods forming part of the assets of a business is wholly or partly deductible, their use for the private purposes of the taxable person or of his staff or for purposes other than those of his business is treated as a supply of services for consideration. That use, which is therefore a ‘taxable transaction’ within the meaning of Article 17(2) of that directive is, under Article 11A(1)(c) thereof, taxed on the basis of the cost of providing the services (Charles and Charles-Tijmens, paragraph 25, and Wollny, paragraph 23).
[42] Consequently, where a taxable person chooses to treat an entire building as forming part of the assets of his business and uses part of that building for private purposes he is both entitled to deduct the input VAT paid on all construction costs relating to that building and subject to the corresponding obligation to pay VAT on the amount of expenditure incurred to effect such use (Wollny, paragraph 24)." (Puffer C-460/07)
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- If treated as partly business goods, partial recovery
"[43] By contrast, if the taxable person chooses, when acquiring capital goods, to allocate those goods entirely to his private assets or to allocate only part of them to his business activities, no right to deduct can arise in relation to the part allocated to his private assets (see, to that effect, Case C-97/90 Lennartz [1991] ECR I-3795, paragraphs 8 and 9, and Case C-25/03 HE [2005] ECR I-3123, paragraph 43).
[44] Equally, on that hypothesis, subsequent use for business purposes of the part of the goods allocated to private assets is not capable of giving rise to a right to deduct, because Article 17(1) of the Sixth Directive lays down that the right to deduct is to arise at the time when the deductible tax becomes chargeable. There is no adjustment mechanism to that effect under Community legislation as it stands, as the Advocate General states in point 50 of her Opinion." (Puffer C-460/07)
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- No recovery in respect of the part excluded from business assets
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"[28] It is established that if the taxable person chooses to exclude part of an item of property from his business assets, that part never forms part of those assets. He cannot, therefore, be regarded as using goods forming part of his business assets for the purposes of Articles 5(6) and 6(2)(a) of the Directive. Consequently, that part, which is not used for providing taxable business services or deliveries, does not fall within the scope of the VAT system and must not be taken into account for the application of Article 17(2)(a) of the Directive.
[29] The answer to the second question must therefore be that, where a taxable person sells property part of which he had chosen at the time of acquisition not to assign to his business, only the part of the property assigned to his business is to be taken into account for the application of Article 17(2) of the Directive." (Armbrecht C-291/92)
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- No input recovery if decision is to retain wholly within private assets
"[27] When a taxable person thus decides to retain a capital item entirely within his private assets, whether or not he uses it for both business and private purposes, no portion of the input VAT due or paid on the acquisition of the item is therefore deductible.
[28] In that respect, the choice, for a taxable person, between assigning goods to his private assets and assigning them, in whole or in part, to his business assets may be based on a variety of considerations, including the fact that he is not, in any event, authorised to deduct the residual VAT on a business asset purchased second-hand from a non-taxable person.
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[32] In the light of the foregoing, the Commission's argument that a taxable person demonstrates his decision to assign an item by using it wholly or partly for the purpose of his business activities and is therefore precluded from assigning a mixed-use item wholly to his private assets must be rejected." (Bakcsi C-415/98)
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- Can recover input VAT on connected costs on private assets, such as repair
"[33] It is also necessary to reject the argument put forward by the German and Greek Governments to the effect that the taxable person's choice to integrate into his business assets an item of property purchased from a private individual, the acquisition of which does not create a right to deduct VAT, results from the fact that he exercises the right to deduct the VAT levied on the expenses connected to the item, such as repairs. The purpose to which a particular capital item is assigned determines the application of the VAT system to the item itself and not to the goods and services employed for its use and maintenance. The right to deduct the VAT levied on those goods and services is a separate matter coming under the application of Article 17 of the Sixth Directive. That right depends, in particular, on the connection between those goods and services and the taxed transactions of the taxable person. It follows that the tax arrangements applicable to the supply of capital items must be dissociated from those concerning the taxable expenses incurred for their use and maintenance." (Bakcsi C-415/98)
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