In ITH Comercial Timişoara (ITH) VAT case C-734/19, the European Court of Justice (CJEU) ruled that the right to deduct input VAT on goods and services acquired with a view to carrying out taxable operations is maintained when a project is abandoned due to circumstances beyond the control of the taxable person.
- ITH planned to complete two building projects, which it had begun in 2006 and 2007.
- Both projects were suspended in 2008 and the company finally wrote off the projects in 2015 financial statements.
- In subsequent periods up until 2016, ITH had claimed input VAT for various preparatory work such as consultancy fees, applying for a building permit etc.
The Romanian tax authorities challenged the input VAT deduction on the basis that:
- ITH was aware since the launch of the projects of the risk of non-completion including the chances of not securing planning permission.
- One of the tax inspection reports expressly mentioned that the applicant’s financial position had prevented it from completing the two projects.
ITH appealed and the Romanian tax authorities referred the case to the Court of Justice.
The CJEU ruled that:
- The right to deduct input VAT on goods, acquired with a view to carrying out taxed transactions is maintained when the investment projects initially planned have been abandoned due to circumstances foreign to the wishes of the taxable person.
- That there is no need to adjust this VAT if the taxable person still intends to use the said goods for the purposes of a taxed activity.
It also ruled that in the absence of an agency contract without representation, the commission agent mechanism is not applicable when a taxable person carries out construction in accordance with the needs and requirements of another person supposed to hire said construction.
ITH was entitled to recover input tax incurred on the projects provided that it could show that its intention had not changed.
Useful guides on this topic
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