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ECJ Rules On VAT Deductions For Demolished Buildings

by Ulrika Lomas, Tax-News.com, Brussels

05 December 2012


The European Court of Justice has affirmed a construction company's right to deduct VAT payments on buildings purchased for demolition, and found against the tax authorities in Romania.

The dispute had been referred to the court by the Bucharest Court of Appeal. The local tax authorities had argued that a VAT deduction made by Gran Via Moinesti (GVM) had been unlawful, because the company had purchased buildings not for the purpose of carrying out taxed transactions, but only in order to demolish them.

The company, however, argued that demolishing the buildings had been part of its investment plan, as it planned to build a new residential complex in their place.

Referring to previous Council Directives, the court reasoned that "the deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities," and that economic activity "may consist in several consecutive transactions," including preparatory acts. The fact that GVM had sought a building permit for the site showed that the demolition was one such preparatory act in a series of "linked transactions."

The court further ruled that the demolition did not constitute a change which would require an adjustment to the VAT deduction.

The case was referred back to the court in Bucharest.

TAGS: court | tax | value added tax (VAT) | law | Romania | construction

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