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© 2015 Grant Thornton UK LLP. All rights reserved. ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. grant-thornton.co.uk GRT100456 Summary Article 168 of the VAT Directive confers a right to reclaim VAT incurred on inputs provided that they are used for the purposes of transactions that are themselves taxable transactions. The Lithuanian tax authority considered in this case that as no VAT was chargeable on the public's use of the trail constructed by the taxpayer (because it was to be used by the public free of charge), the condition contained in Article 168 was not satisfied. The CJEU however confirmed that, on the face of it, as the trail allowed the public access to Sveda's taxable outlets, the necessary link existed and the VAT incurred on the construction of the trail could be reclaimed. 23 October 2015 Court of Justice The Court of Justice (CJEU) has issued its judgment in this Lithuanian case which concerns the taxpayer's right to reclaim VAT. The taxpayer is a commercial organisation which entered into an agreement with a Public Body. Under the terms of the agreement, it constructed a pathway (a heritage trail) and recovered the VAT it had incurred on the construction costs. The Lithuanian tax authority refused the repayment on the basis that the trail was open to the public free of charge. As such, the authority argued that, as the trail was not to be used for the purposes of a taxable activity, Sveda had no right to reclaim the VAT incurred. On the other hand, Sveda argued that the trail was a means for the public to access its outlets where it was to sell food and drink, souvenirs and facilities for bathing all of which were liable to VAT. The CJEU was asked to provide guidance on whether, in such circumstances, Article 168 of the VAT Directive granted the taxpayer a right to recover the VAT incurred on the construction of the trail. In its judgment, the CJEU has confirmed that in carrying out its activities, Sveda acted at all times as a taxable person. The case-law of the court confirms that the test for recovery of input VAT is whether there is a direct and immediate link between the expenditure (inputs) and the trader's taxable outputs or whether the expenditure is part of the taxpayer's general costs. That was clearly the case here. Even though the public was entitled to use the trail for no consideration, the trail was a means for the public to access Sveda's taxable economic activities and, as such, Article 168 of the VAT Directive allowed the taxpayer to reclaim the VAT incurred. Comment – A sensible and pragmatic judgment from the CJEU. Where a direct and immediate link to taxable activities exist, there should be no barrier to input VAT recovery. Case C-126/14 – Sveda UAB – Court of Justice Judgment Case Alert Contact Stuart Brodie Scotland [email protected] (0)14 1223 0683 Karen Robb London & South East [email protected] (0)20 772 82556 Andrea Sofield London & South East [email protected] (0)20 7728 3311

Case Alert - Sveda - CJEU Judgment

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© 2015 Grant Thornton UK LLP. All rights reserved.

‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms

provide assurance, tax and advisory services to their clients and/or refers to one or

more member firms, as the context requires.

Grant Thornton UK LLP is a member firm of Grant Thornton International Ltd (GTIL).

GTIL and the member firms are not a worldwide partnership. GTIL and each member

firm is a separate legal entity. Services are delivered by the member firms. GTIL does

not provide services to clients. GTIL and its member firms are not agents of, and do not

obligate, one another and are not liable for one another’s acts or omissions.

This publication has been prepared only as a guide. No responsibility can be accepted

by us for loss occasioned to any person acting or refraining from acting as a result of

any material in this publication.

grant-thornton.co.uk

GRT100456

Summary Article 168 of the VAT Directive

confers a right to reclaim VAT

incurred on inputs provided that

they are used for the purposes of

transactions that are themselves

taxable transactions.

The Lithuanian tax authority

considered in this case that as no

VAT was chargeable on the public's

use of the trail constructed by the

taxpayer (because it was to be used

by the public free of charge), the

condition contained in Article 168

was not satisfied.

The CJEU however confirmed that,

on the face of it, as the trail allowed

the public access to Sveda's taxable

outlets, the necessary link existed

and the VAT incurred on the

construction of the trail could be

reclaimed.

23 October 2015

Court of Justice

The Court of Justice (CJEU) has issued its judgment in this Lithuanian case which

concerns the taxpayer's right to reclaim VAT.

The taxpayer is a commercial organisation which entered into an agreement with a

Public Body. Under the terms of the agreement, it constructed a pathway (a heritage

trail) and recovered the VAT it had incurred on the construction costs. The Lithuanian

tax authority refused the repayment on the basis that the trail was open to the public

free of charge. As such, the authority argued that, as the trail was not to be used for the

purposes of a taxable activity, Sveda had no right to reclaim the VAT incurred.

On the other hand, Sveda argued that the trail was a means for the public to access its

outlets where it was to sell food and drink, souvenirs and facilities for bathing all of

which were liable to VAT.

The CJEU was asked to provide guidance on whether, in such circumstances, Article

168 of the VAT Directive granted the taxpayer a right to recover the VAT incurred on

the construction of the trail.

In its judgment, the CJEU has confirmed that in carrying out its activities, Sveda acted

at all times as a taxable person. The case-law of the court confirms that the test for

recovery of input VAT is whether there is a direct and immediate link between the

expenditure (inputs) and the trader's taxable outputs or whether the expenditure is part

of the taxpayer's general costs. That was clearly the case here. Even though the public

was entitled to use the trail for no consideration, the trail was a means for the public to

access Sveda's taxable economic activities and, as such, Article 168 of the VAT

Directive allowed the taxpayer to reclaim the VAT incurred.

Comment – A sensible and pragmatic judgment from the CJEU. Where a direct and

immediate link to taxable activities exist, there should be no barrier to input VAT

recovery.

Case C-126/14 – Sveda UAB – Court of

Justice Judgment

Case Alert

Contact Stuart Brodie Scotland [email protected] (0)14 1223 0683

Karen Robb London & South East [email protected] (0)20 772 82556

Andrea Sofield London & South East [email protected] (0)20 7728 3311