Input VAT before and after conducting a business activity

09.2012

The accrual of input VAT before a company begins its regular business activity and when it is undergoing a winding-up process and is no longer active is very common. Two rulings establish that under no circumstances can the input VAT accrued during these two stages of a business be lost.

In a consultation to the Spanish tax administration of 7 July 2011, which is based on the criterion applied by the ECJ in a ruling of 3 March 2005 (C-32/03), it was declared that the business status would be maintained, and therefore input VAT would be deductible, until the business had been completely liquidated; this would apply even when, in its final stages, the business no longer operated regularly, and only extraordinary administrative actions were carried out, such as selling the company’s assets, or continuing to pay rent because the lease could not be terminated prior to the company ceasing its activity. The mere fact that a company has requested its deregistration from the Companies Register shall not be an obstacle to continue requesting the refund of input VAT, provided that the corresponding tax returns are filed and the invoices meet all the requirements. 

Similarly, a recent ruling by the CJEU from 1 March 2012 (C-280/10) established that all input VAT accrued prior to a future partner or business person beginning a business activity shall be deductible, even if the invoices received are issued to a different tax identification number to that of the future company. In sum, if there is no evidence of fraud or bad faith, VAT must never be an expense for a business person.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++