© 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