Sveda UAB: Interesting AG Opinion on Recovery of Input VAT

 

The AG’s opinion in the Lithuanian Sveda UAB ECJ VAT case has now been released and includes some interesting points with regard to the recovery of input VAT and the link to business/non-business activities.

If the Court follows the AG’s opinion there could be enhanced input VAT recovery opportunities for taxpayers that make both business and non-business supplies.

The case concerns the recovery of input VAT incurred on the construction of a tourist trail which was mostly funded by the Lithuanian Ministry of Agriculture. The funding was provided on condition that access to the attraction be made available to the public free of charge. Sveda would earn revenue through its sales of refreshments and souvenirs at the site. Sveda recovered the input VAT on the basis of its intention to make these taxable supplies, however its claim was refused by the Lithuanian tax authority. In their view there was not a direct and immediate link between the construction costs incurred and sales of food, drink and souvenirs at the attraction.

The AG however disagreed and was of the view that providing free access to the trail did not prevent recovery of the input VAT incurred on its construction. In her opinion the ‘primary’ use of the attraction did not break the direct and immediate link with the other related taxable business supplies of goods and services made by Sveda. She also considered that the receipt of grant funding which covered the majority of the construction costs was not relevant. Any private use deemed supply was not a consideration in this case since the trail was not put to any use outside Sveda’s business.

Other points worth noting are the AG’s suggestions that:

  • not charging for the use of a business asset does not mean that the asset is not a business asset provided there is an underlying business purpose, in this case to attract customers to whom business supplies of souvenirs and catering could be made;
  • if an asset is put to more than one use and the secondary use is to make taxable supplies, input VAT should not be restricted unless the asset is either put to use outside the business, or the main business purpose is to make an exempt supply;
  • the value of input costs does not have to be fully built into the price of subsequent sales in order for the input VAT to be recovered in full.

 

It will be interesting to see whether the Court follows the AG’s opinion and depending on which way the decision goes whether HMRC sees the direct and immediate link point in any wider context.