CJEU ruling about the deduction of VAT on intra-group transactions

At a Glance

On 12 December 2024, the CJEU delivered its ruling in the “Weatherford Atlas Grip” ruling, regarding the deduction of input VAT on intra-group services. 

A closer look
 

Ruling of the CJEU regarding the deduction of input VAT on intra-group services (Weatherford Atlas Gip SA, C-527/23, 12 December 2024).

Background and question to the CJEU

Weatherford Atlas Gip SA (“WAG”) is a Romanian company providing coring, drilling and extraction services in the oil industry and is part of an international group.

WAG purchased general administrative services provided by other group companies and used by the different companies of the group it is part of. These administrative services relate to IT, HR, marketing, finance, accounting, environment protection, sales, etc.

Following an inspection, the Romanian authorities decided that the VAT relating on these services could not be deducted. Indeed, the authorities consider that there is no evidence that those services have been purchased for the purposes of taxable transactions granting the right to deduct input VAT.

WAG lodged an appeal with the Tribunal against the tax assessment issued by the tax authorities. The Tribunal decided to refer the following questions to the Court of Justice of the European Union (CJEU):

1. Could a tax authority deny the deduction of the VAT incurred (input VAT) on administrative services acquired when all the costs have been included in the taxable person’s general costs, that the taxable person carries out only taxable transactions and that the supply of services is effectively confirmed by the tax authorities?
2. Could the management services provided between intra-group companies for the benefit of different members of the group be regarded as acquired for its own purposes?
3. If it is established that the services are not supplied to a member of the group, may this person be regarded as a taxable person acting as such?

Note: The CJEU examined the two first questions jointly and did not answer to the third question considering it as non-relevant.

Decision of the CJEU

The Court ruled that the right of deduction could not be refused for the VAT “paid by a taxable person on the acquisition of services from other taxable persons forming part of the same group of companies, on the grounds that those services were simultaneously supplied to other companies in that group and that their acquisition was not necessary or appropriate, where it is established that those services are used as output services by that taxable person for the purposes of his own taxable transactions.”

Comments

The decision could be considered as favorable to taxpayers as it confirms that the deduction of the VAT paid on intragroup administrative services could not be denied on the ground that they were simultaneously supplied to other companies of the group.

Similarly, the deduction could not be refused because the services would not have been necessary or appropriate to the activities of the taxable person. In this respect, the Court elaborated that:

“The question whether the acquisition of the administrative services at issue in the main proceedings was necessary or appropriate also appears to be irrelevant, since the VAT Directive does not make the exercise of the right of deduction subject to a criterion of economic profitability of the input transaction. The common system of VAT is intended to ensure neutrality as regards the tax burden of all economic activities, whatever their purpose or results, provided that those activities are, in principle, themselves subject to VAT.”

However, it remains necessary for the taxable person to be able to demonstrate that the services have been used for its business activity. Indeed, the Court ruled that:

“As regards, lastly, the burden of proof, it is settled case-law that it is for the taxable person who applies for the deduction of VAT to establish that he satisfies the conditions laid down for benefiting from it.” and that “In order to determine the extent of the taxable person's right to deduct, it is for the referring court to determine, in particular in the light of the contracts for the supply of services and the economic and commercial reality, to what extent the services concerned have actually been provided in order to enable the taxable person to carry out his taxable transactions. (…)”

We should also mention that other cases regarding VAT on intercompany transactions should receive rulings from the CJEU in the following months:

• SC Arcomet Towercranes SRL case (C-726/23): Is a transfer pricing adjustment a supply of service?
• Högkullen AB case (C-808/23): What is the taxable amount of services provided by a parent company to its subsidiaries?
• Stellantis Portugal, S.A. case (C-603/24): Are price adjustments to achieve a minimum profit margin falling within the scope of VAT?

The Deloitte Luxembourg Indirect Tax Team remains at your disposal to discuss the potential impacts on your organization.