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Written off goods and correction of input VAT deduction

The Court of Justice of the European Union has published its judgment in Case C-127/22, which deals with the obligation to correct a claim for input VAT deduction in respect of goods which have been voluntarily destroyed. The full judgment can be read HERE.

The case concerns a taxable person who has wrote offvarious goods, such as installations, equipment or appliances, which have become unfit for use or sale for various reasons, in particular because they are worn out, defective or even obsolete or unsuitable. Some of these assets have been sold as waste to third parties and others have been destroyed or disposed of. It was disputed whether such goods were liable to correct the VAT deduction.

Perhaps unsurprisingly, the Court of Justice of the European Union (CJEU) confirmed that there was no need to adjust the VAT deduction where the goods were subsequently sold as waste, albeit at a loss. However, following the C-293/21 Vittamed Technologies judgment, which can be read HERE, it was exciting to see how the CJEU would treat assets that were destroyed voluntarily by the payer's own decision.  

According to Article 185 of the VAT Directive, there is no need to make a correction for destruction, loss or theft of property that has been properly documented or confirmed. According to the CJEU, the term 'destruction' refers to the act of substantially altering an object, removing it by demolition, or disposing of it. The term "loss" means to be deprived of a thing owned or used. It follows that the loss of property cannot result from the voluntary act of its owner or holder, whereas in the case of destruction this is not excluded.

According to the CJEU, it is possible to equate the dumping of an item in a landfill with the "destruction" of an item, because it leads to the irreversible extinction of that property. However, only the destruction of an asset which has been decided on because of the objective loss of the usefulness of that asset in the normal course of the taxpayer's business can be regarded as properly documented.

The CJEU judgment basically confirms the existing administrative practice, as can be seen from the information of the GFD HERE. However, increased attention must be paid not only to proving the disposal of the goods, but also to whether their economic potential has been exhausted.

If you have any questions, please contact the authors of the paper or members of the EY team with whom you usually work.

Authors:

Stanislav Kryl

Michaela Nováková