© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
M9. Capital goods adjustments
GENERAL​
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Purpose
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- Avoid inaccuracies and unjustified advantages/disadvantages
"[30] The period laid down in Article 187 of the VAT Directive for adjustment of deductions makes it possible to avoid inaccuracies in the calculation of deductions and unjustified advantages or disadvantages for a taxable person where, in particular, changes in the factors initially taken into consideration in order to determine the amount of deductions occur after the declaration has been made." (Mateusiak C-229/15)
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- Likelihood of changes particularly significant for capital goods
"[30] ... The likelihood of such changes is particularly significant in the case of capital goods, which are often used over a number of years, during which the purposes to which they are put may alter (see, to that effect, judgment of 30 March 2006 in Uudenkaupungin kaupunki, C‑184/04, EU:C:2006:214, paragraph 25, and order of 5 June 2014 in Gmina Międzyzdroje, C‑500/13, EU:C:2014:1750, paragraph 20)." (Mateusiak C-229/15)
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Capital goods ​
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- Services with similar characteristics may be treated as capital goods
"For the purposes of Articles 187, 188, 189 and 191, Member States may regard as capital goods those services which have characteristics similar to those normally attributed to capital goods." (Article 187)
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Adjustment period ​
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- EU law: 5 to 20 years
"Article 187
(1) In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured.
Member States may, however, base the adjustment on a period of five full years starting from the time at which the goods are first used.
In the case of immovable property acquired as capital goods, the adjustment period may be extended up to 20 years.
(2) The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.
The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time." (Article 187)
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Adjustment amount​
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- EU law: based on equivalent fraction
"(2) The annual adjustment shall be made only in respect of one-fifth of the VAT charged on the capital goods, or, if the adjustment period has been extended, in respect of the corresponding fraction thereof.
The adjustment referred to in the first subparagraph shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired, manufactured or, where applicable, used for the first time." (Article 187)
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- No adjustment in respect of the part excluded from business assets
"[32] Since, as is clear from the answer given to the second question, the right to deduct input tax under Article 17(2) of the Directive applies only to the part of the relevant asset assigned to the business, the adjustment of that deduction must also be limited to that part of the asset.
[33] The answer to the third question must therefore be that the adjustment of the input-tax deduction under Article 20(2) of the Directive must be limited to the part of the property assigned to the business." (Armbrecht C-291/92)
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