ECJ: Right to deduct input VAT for intra-group services

The ECJ recently had to deal with the issue of input VAT deduction for intra-group services and came to the conclusion that the entitlement to input VAT deduction must be assessed according to the objective content of the respective transaction. However, it is not relevant whether the services are provided to several group companies at the same time or whether they were actually necessary.

The deduction of input VAT is an integral part of the European VAT system and cannot, in principle, be restricted. The purpose is to completely relieve the taxable person of the VAT owed or paid in the context of all his economic activities in order to ensure the neutrality of VAT in the business sector.¹ In particular, the deduction of input VAT in connection with intra-group services is repeatedly the subject of court decisions.

1. The Case

Weatherford Atlas Gip (W) is part of the Weatherford group of companies. In 2016, the company acquired the Romanian company Forserco SA (F SA) through a merger, including all rights and obligations. In 2015 and 2016, F SA had provided services to a number of customers in Romania, for which it acquired general administrative services from the Weatherford Group in connection with IT, human resources, marketing, accounting and consulting. These administrative services were simultaneously sold by the Weatherford Group to other companies of the same group.

After the merger, the Romanian tax administration carried out an audit and denied W the right to claim input VAT deduction for the acquired administrative services as the universal successor of F SA, inter alia on the grounds that it was not proven whether there was a connection between the acquired services and the activity of F SA. In addition, there was a lack of evidence as to whether the services purchased by F SA were necessary for them at all.

The appeal lodged by W against this decision was rejected by the tax administration, whereupon W brought an action for annulment before the Prahova Regional Court in Romania. The court pointed out that it was only disputed whether the taxpayer had needed the services or not. It was questionable whether the right to deduct input VAT could be denied on the basis of a subjective assessment by the tax authorities regarding the necessity of services if it was proven that the related costs were part of the taxable person’s general expenses.

The court stayed the proceedings and referred the following question to the ECJ for a preliminary ruling:

May a national tax administration deny the right to deduct input VAT on intra-group services on the grounds that those services were also provided to other group companies at the same time and their acquisition was not necessary or appropriate?

2. Judgement of the ECJ

ECJ 12.12.2024, C-527/23, Weatherford Atlas Gip

The right to deduct input VAT² presupposes that there must be a direct link between an input transaction and the output transactions.³ However, in the absence of such a link, the right to deduct input VAT may continue to exist even if the costs are part of the general expenses and, as such, are cost elements of the output transactions.⁴

The existence of such a link must be assessed on the basis of the objective content of the transactions. The referring court must therefore determine the extent to which the services in question were actually provided in order to enable the taxable person to carry out his taxed transactions. Only to this extent is input VAT charged on the services provided by the taxable person and may be deducted.⁵

In addition, the person concerned must be a “taxable person” within the meaning of the VAT Directive. The ECJ points out that the Weatherford Group consists of different taxable persons and therefore does not form a VAT group, as the group members are not limited to the territory of the same Member State⁶.⁷

In contrast, the fact that the administrative services of the Weatherford Group were provided to several recipients at the same time is irrelevant to the question of the right to deduct input VAT. The question of whether the services were necessary or expedient is also irrelevant, as the VAT system is intended to ensure neutrality with regard to the tax burden on all economic activities regardless of their purpose or result. The right to deduct input VAT once it has arisen therefore remains in force even if the intended economic activity is not subsequently carried out.⁸

Art 168 of the VAT Directive must therefore be interpreted as meaning that the provision precludes the denial of the right to deduct input VAT by a tax administration on the grounds that the intra-group services were also provided to other group companies at the same time and their acquisition was not necessary, if the taxable person uses the services at the subsequent stage of the transaction for the purposes of its own taxed transactions.

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