Input VAT deduction for intra-group services
The allocation of intra-group services can lead to problems with input VAT deduction. In a recent ruling, the ECJ made it clear that merely taking services that are used throughout the group was not sufficient for input VAT deduction.
In its judgement of 12.12.2024 (case: C-527/23), the decision by the ECJ related to a Romanian company that, within the framework of intra-group agreements, purchased administrative services (especially IT, personnel, accounting, marketing and consulting) from affiliated companies based outside of Romania whereby the reverse charge mechanism was applicable. Other group companies purchased similar services.
In the context of a tax audit, the Romanian tax authority refused the deduction of input VAT. The reason given to justify this was that the services could not be exclusively allocated to the claimant. A link between the purchased services and taxable transactions of the company could not be sufficiently established.
The ECJ decided that for input VAT deduction a direct link has to exist between the services received and the transactions of the taxpayer. In the absence of this, for example, if the services are also benefitting other group companies, no input VAT deduction can be claimed. It is irrelevant here whether or not the services for the company could be deemed as being appropriate or necessary. The sole decisive factor is whether or not the taxable proportion of the costs borne by the taxpayer can be attributed to a service that was actually used for the taxpayer’s own taxable business activity.
