Reopen discussion on the possibility for a lessee of imported goods to deduct import VAT

Criteria for deduction of import VAT

As far as the formal conditions for deduction of VAT are concerned, it appears that these are fulfilled when the lessee holds an import document specifying him as importer and stating the amount of VAT due or enabling that amount to be calculated.

According to CJEU case-law, the substantive conditions to deduct VAT must be seen as fulfilled if the taxable person complies with the following two prerequisites:

• the costs incurred are necessary to carry out the economic activity of the taxable person,
• these costs are included in the cost of his output transactions.

What if the lessee is the importer of the goods?

The VAT Committee referred in Working Paper No 1061 to its previous Working paper No 762 dealing with an aircraft lease, where it was stated that the lessee does not actually bear the (overall) costs of the aircraft, simply the amount of the lease to be paid to the owner. Therefore, while the costs of the lease are included in the price of the output transaction of the lessee, that is not the case with the costs of the aircraft itself. The costs of the aircraft are costs for the owner, who passes them on to the lessee as part of the price charged for the lease.

The costs of the aircraft are borne by the owner only, not by the lessee. In the discussed case, an operational lease was concerned. Within the EU, such leases are clearly regulated and subject to strict time-limits. These elements are relevant for the VAT analysis as they determine the economic background of the transaction.

The EU VAT Committee holds the view that under these circumstances, allowing a full deduction to the lessee would be disproportionate and therefore, the previous conclusions expressed in Working paper No 762 should be maintained. For the importer to be allowed to deduct the VAT paid on the importation of goods, the goods imported must be necessary to carry out the economic activity of the taxable person and the costs of the importation need to be included in the cost of his output transactions.

In the case of importation of an aircraft by the lessee, while the first condition is fulfilled, the second is not, as only the price of the lease and not the costs of the importation of the aircraft are included in the cost of the lessee’s output transaction.

Next developments

However, the Commission services are aware that some EU Member States are applying a different criterion to these situations, nevertheless granting a right to deduct the import VAT to the lessee. Furthermore, several rulings of the CJEU have addressed situations whereby deduction of the VAT paid is allowed for persons who are not the owner of the goods.

Therefore, the Commission services think that it is now necessary to return to this topic and requested delegations to give their opinion on this matter. Albeit the working paper deals with a specific case of lease of aircraft, developments of the discussions should be monitored as they may be relevant for other types of import transactions as well.

About the VAT Committee

The VAT Committee was set up to promote the uniform application of the provisions of the VAT Directive in the EU. Because it is an advisory committee only and has not been attributed any legislative powers, the VAT Committee cannot take legally binding decisions. It can however give some guidance on the application of the mentioned Directive.