Brussels, 29 October 2009
VAT – Commission pursues infringement proceedings against Austria on the exclusion of the right to deduct input tax with regard to construction costs for mixed use buildings
The European Commission has formally requested Austria to change its VAT legislation as regards the exclusion of the right to deduct VAT on building costs for properties attributed to assets of a business that are partially used for private purposes. The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in article 226 of the EC Treaty). If the relevant national legislation is not amended to comply with the reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice.
A basic principle of the VAT Directive is that a taxable person may deduct the VAT on purchases "in so far as the goods and services are used for the purposes of the taxed transactions of a taxable person". According to the jurisprudence of the European Court, when goods are used for business and private purposes, a taxable person may choose to deduct immediately, and in full, all the VAT paid on the purchase of these goods even when of the part of business use is very limited. However in the case of Austria the taxpayer should account for VAT on the private use.
When the Sixth VAT Directive entered into force in Austria, its VAT legislation disallowed any input tax deduction in respect of the part of a building used by a taxable person for his private residential purposes. According to a standstill clause Austria may retain the exclusions of the right to deduct VAT on the date of their accession. The European Court has ruled that, after accession, Member States benefiting from such a standstill provision are entitled to modify these exclusions but only to abolish or reduce their scope. By contrast, no modification leading to a wider scope of the exclusion or its reintroduction after abolition is allowed
In 1997, the Austrian VAT law was amended to allow such mixed-used buildings to be entirely treated as forming part of the assets of a business and hence, in principle, eligible for input tax deduction. But the Austrian VAT law continued to deem the private use of a mixed-used building as an exempt self-supply, thus in practice the right to deduct input tax on the partially private use of the building was precluded.
However, as from 1 January 2004, the tax exemption was abolished and from that date on, the partially private use of a building was taxable. Furthermore, the Austrian Turnover Guidelines (Umsatzsteuer-Richtlinien) explicitly stipulate that the deduction of input tax could be claimed in full. With effect from 1 May 2004 the exclusion of the right to deduct input tax was reintroduced by an amendment of the Austrian VAT Act.
Consequently, the Commission takes the view that on the basis of the Austrian VAT provisions, during the period 1 January 2004 to 30 April 2004, input tax deduction in the categories at hand was possible, and not any more from the latter date.
This entails that, at least, from May 2004 the scope of the previous exclusion has been reintroduced in breach of the VAT Directive.
Austria has been given two months to bring their legislation in conformity with Community Law.
The case has been assigned No 2005/4327.
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