Morgan Stanley & Co International plc v Ministre de l'Économie et des Finances.
Date: 2019-01-24
27


In order to answer that question, it is necessary, in the first place, to recall that, according to settled case-law of the Court, the right of taxable persons to deduct from the VAT which they are liable to pay the VAT due or paid on goods purchased and services received by them as inputs is a fundamental principle of the common system of VAT established by EU legislation. That right of deduction is an integral part of the VAT scheme and in principle may not be limited. The right is exercisable immediately in respect of all the taxes charged on transactions relating to inputs (judgment of 15 September 2016, Barlis 06 — Investimentos Imobiliários e Turísticos, C‑516/14, EU:C:2016:690, paragraphs 37 and 38 and the case-law cited).
28


The deduction system is intended to relieve the trader entirely of the burden of the VAT due or paid in the course of all his economic activities. The common system of VAT therefore ensures that all economic activities, whatever their purpose or results, provided that they are in principle themselves subject to VAT, are taxed in a neutral way (judgment of 15 September 2016, Barlis 06 — Investimentos Imobiliários e Turísticos, C‑516/14, EU:C:2016:690, paragraph 39 and the case-law cited).
29


In that regard, it is apparent from Article 17(2)(a) of the Sixth Directive and Article 168(a) of Directive 2006/112 that a taxable person is entitled, in the Member State in which he carries out his own taxed transactions, to deduct, from the VAT which he is liable to pay, the VAT due or paid in that Member State in respect of goods and services, in so far as those goods and services were used as outputs by the taxable person for the purposes of those transactions (see, to that effect, judgment of 15 September 2016, Barlis 06 — Investimentos Imobiliários e Turísticos, C‑516/14, EU:C:2016:690, paragraph 40 and the case-law cited).
30


Thus, the Court has held that, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 23 and the case-law cited).
32


The right to deduct laid down in the provisions cited in the previous paragraph is therefore subject to the twofold condition (i) that the transactions of a taxable person effected in a Member State other than the State in which the VAT is due or paid in respect of the goods and services used to carry out those transactions be taxed in the first of those Member States and (ii) that those transactions also be taxed if they were effected in the second of those States (see, to that effect, judgments of 13 July 2000, Monte Dei Paschi Di Siena, C‑136/99, EU:C:2000:408, paragraph 28, and of 22 December 2010, RBS Deutschland Holdings, C‑277/09, EU:C:2010:810, paragraphs 31 and 32).
34


In the second place, it should be recalled that Article 4(1) of the Sixth Directive and the first subparagraph of Article 9(1) of Directive 2006/112 define ‘taxable persons’ for VAT purposes as persons who carry out any economic activity ‘independently’ (see, to that effect, judgments of 23 March 2006, FCE Bank, C‑210/04, EU:C:2006:196, paragraph 33, and of 7 August 2018, TGE Gas Engineering, C‑16/17, EU:C:2018:647, paragraph 40).
35


With regard to a company whose principal establishment is located in a Member State and whose branch is registered in another Member State, it is apparent from the case-law of the Court that the principal establishment and the branch constitute a single taxable person subject to VAT, unless it is established that the branch carries out an independent economic activity, which would be the case inter alia if it were to bear the economic risk arising from its business (see, to that effect, judgment of 7 August 2018, TGE Gas Engineering, C‑16/17, EU:C:2018:647, paragraph 41 and the case-law cited).
37


In that context, it should be recalled that a supply of services is taxable only if there exists between the service supplier and the recipient a legal relationship in which there is a reciprocal performance (judgments of 23 March 2006, FCE Bank, C‑210/04, EU:C:2006:196, paragraph 34, and of 17 September 2014, Skandia America (USA), filial Sverige, C‑7/13, EU:C:2014:2225, paragraph 24).
41


That pro rata system applies, inter alia, where a branch registered in a Member State incurs expenditure for the purposes both of taxed transactions and VAT-exempt transactions carried out by its principal establishment established in another Member State (see, to that effect, judgment of 13 July 2000, Monte Dei Paschi Di Siena, C‑136/99, EU:C:2000:408, paragraphs 26 to 28).
42


The Court has made it clear that the deduction system laid down in Article 17(5) of the Sixth Directive and Article 173(1) and (2) of Directive 2006/112 and the methods of deduction of which that system consists apply only to the goods and services used by a taxable person to carry out both economic transactions which give rise to a right to deduct and those which do not, that is to say, goods and services for mixed use (see, to that effect, judgments of 6 September 2012, Portugal Telecom, C‑496/11, EU:C:2012:557, paragraph 40; of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 26, and of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft, C‑332/14, EU:C:2016:417, paragraph 26).
43


On the other hand, the goods and services which are used by the taxable person solely to carry out economic transactions giving rise to a right to deduct do not fall within the scope of Article 17(5) of the Sixth Directive or Article 173(1) of Directive 2006/112, but are covered, as regards the deduction system, by Article 17(2) of the Sixth Directive and Article 168 of Directive 2006/112, respectively (judgment of 6 September 2012, Portugal Telecom, C‑496/11, EU:C:2012:557, paragraph 41).
45


Thus, in so far as, in addition to mixed-use expenditure, the taxable person acquires goods and services which are used exclusively for transactions subject to VAT, the VAT charged on those goods and services may be deducted in full, in accordance with Article 17(2) and (3) of the Sixth Directive, and Articles 168 and 169 of Directive 2006/112 (see, to that effect, judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 27 and the case-law cited). Conversely, VAT charged on the goods and services used exclusively for the purposes of any transactions exempt from that tax do not give rise to any right to deduct.
56


In that regard, it should be recalled that the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct, for the purposes of the case-law cited in paragraph 30 of this judgment, is necessary, in principle, before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them was a component of the cost of the output transactions that gave rise to the right to deduct (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 28 and the case-law cited).
57


Moreover, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct, where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 29 and the case-law cited).