Opinion of the Advocate General — ECLI:EU:C:1999:467
Date: 1999-09-30
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: United Kingdom

Summary of the Judgment 
Tax provisions — Harmonisation of laws — Turnover taxes — Common system of value 
added tax — Deduction of input tax — Taxable person carrying out both taxable and 
exempt transactions — Tax on services provided for VAT-deductible and non-deductible 
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SUMMARY — CASE C-98/98 
transactions — Right to deduct — Condition — Existence of a direct and immediate link 
with VAT-deductible output transactions 
(Council Directives 67/227, Art. 2, and 77/388, Art. 17(2), (3) and (5)) 
Article 2 of the First Directive 67/227 and 
Article 17(2), (3) and (5) of the Sixth 
Directive 77/388 on the harmonisation of 
the laws of the Member States relating to 
turnover taxes must be interpreted as 
meaning that, in principle, the existence 
of a direct and immediate link between a 
particular input transaction and a particu­
lar output transaction or transactions giv­
ing rise to entitlement to deduct is neces­
sary before the taxable person is entitled to 
deduct input value added tax and in order 
to determine the extent of such entitlement. 
It is for the national court to apply the 
'direct and immediate link' test to the facts 
of each case before it. A taxable person 
who makes transactions in respect of which 
value added tax is deductible and transac­
tions in respect of which it is not may 
deduct the value added tax in respect of the 
goods or services acquired by him, provi­
ded that such goods or services have a 
direct and immediate link with the output 
transactions in respect of which value 
added tax is deductible, without it being 
necessary to take into account Arti­
cle 17(2), (3) or (5) of the Sixth Directive 
77/388. However, such a taxable person 
cannot deduct in its entirety the value 
added tax charged on input services where 
they have been utilised not for the purpose 
of carrying out a deductible transaction but 
in the context of activities which are no 
more than the consequence of making such 
a transaction, unless that person can show 
by means of objective evidence that the 
expenditure involved in the acquisition of 
such services is part of the various cost 
components of the output transaction. 
(see paras 24, 33 and operative part 1-2) 
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