Judgment — ECLI:EU:C:2009:261
Date: 2009-04-23
Language of the case: Hungarian
Court formation: Fourth Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Taxation;Value added tax
Concepts: Origin and scope of right of deduction;Restrictions on the right of deduction
Procedure: Reference for a preliminary ruling
Origin: Hungary

Summary of the Judgment 1. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax – Exclusions from the right of deduction – Option for Member States to retain exclusions existing on entry into force of the Sixth Directive (Council Directive 77/388, Art. 17(2) and (6)) 2. Tax provisions – Harmonisation of laws – Turnover taxes – Common system of value added tax – Deduction of input tax (Council Directive 77/388, Art. 17(2)) 1. Article 17(2) and (6) of Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted to the effect that it precludes national legislation which, in the case of acquisition of goods subsidised by public funds, allows the deduction of related VAT only up to the limit of the non-subsidised part of the costs of that acquisition. Such national legislation introduces, with regard to the purchase of goods or services financed by a subsidy, a restriction which is not permissible under Article 17(2) of the Sixth Directive. It is true that the principle of the right to deduct VAT is none the less subject to the derogation set out in the second subparagraph of Article 17(6) of the Directive. However, the second subparagraph of Article 17(6) of the Sixth Directive must be read in the light of the first subparagraph of the same provision, which confers on the Council the power to determine, on a proposal from the Commission, what expenditure is not to be eligible for a deduction of the tax, and which specifies that, in no circumstances, is expenditure to be deductible which is not strictly business expenditure, such as that on luxuries, amusements or entertainment. Consequently, and in view of the strict interpretation which it must be given as a derogation, the second subparagraph of Article 17(6) of the Sixth Directive cannot be regarded as permitting a Member State to maintain a restriction of the right to deduct value added tax which may also apply in a general manner to any costs related to the acquisition of goods, irrespective of the nature or purpose of that restriction. That interpretation is also obvious in the light of the history of that provision, which demonstrates a continuing intention on the part of the Community legislature not to authorise the exclusion of certain goods or services from the deduction system, and not to authorise general exclusions from that system. (see paras 20-21, 27-30, operative part 1) 2. Article 17(2) of the Sixth Directive 77/388 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment confers on taxable persons rights on which they may rely before a national court to contest national rules that are incompatible with that provision. In addition, in so far as an exception from the system of deductions has not been established in accordance with the provisions of the Sixth Directive, the national tax authorities may not rely as against a taxable person on a provision derogating from the principle of the right to deduct value added tax. A taxable person having been subject to such a measure must therefore be able to recalculate his tax debt in accordance with Article 17(2) of the Sixth Directive, in so far as the goods and services have been used for the purposes of taxable transactions. (see paras 33-36, operative part 2)