In its decision Ro 2015/15/0014 of 28.06.2017, the Administrative Court commented for the first time on the deduction of input VAT on costs incurred in connection with the sale of an investment (which is not exempt from VAT and therefore not entitled to input VAT deduction according to general principles).

In 2005, the appellant – a public limited company – sold its shares in a subsidiary. The transaction was tax-free. The appellant used consulting services for this sale of shares and claimed input tax for this.

The tax office did not recognize the input tax associated with the consulting services. The reason given for this was that the consultancy costs were directly related to the sale of shares and therefore to a tax-free transaction. The appellant was therefore not entitled to deduct input tax.

The appellant argued in its appeal that “dhe non-allowance of input VAT deduction contradicts the case law of the ECJ, which stated in its ruling of October 29, 2009, C 29/08, SKF, that there is only no right to deduct input VAT if the consultancy services are directly related to the sale of the shares. According to the ECJ, a direct link only exists if the expenses for the consultancy services are included in the sales price of the shares sold, which was not the case in this instance. ” The Federal Fiscal Court did not uphold the appeal.

According to the ECJ’s established case law on input VAT deduction under Art. 17 (77/388/EEC) and Art. 68 of Directive 2006/112/EC, there must, in principle, be a direct and immediate link between a specific input transaction and one or more output transactions that give rise to the right to deduct input VAT. Even in the absence of such a link, input VAT deduction can be assumed if the costs for the services are part of the taxable person’s general expenses and are cost elements of the goods or services supplied by him for tax purposes. Such costs are directly and immediately related to the overall economic activity of the taxable person.

In the present case, it was established that there was a direct and immediate connection between the consultancy services and the sale of the shareholding. Therefore, the complaint that the finding that the consulting costs were a “cost element of the sale of shares” lacks any justification and assessment of evidence is not justified.

From a legal point of view, this situation means that – in view of thedirect and immediate connection with the tax-exempt turnover – there isno right to deduct input tax with regard to theconsultancy services.