VAT Newsletter 2/2012

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The European Court of Justice („ECJ”) has ruled on the joined cases Balkan and Sea Properties ADSITS (C-621/10) and Provadinvest OOD (C-129/11).

The dispute in these cases concerns the taxable base for VAT purposes for transactions performed between connected persons, when the selling price of the goods is lower or higher than the open market value.

Case C-621/10

Balkan and Sea Properties bought an immovable property from a connected party and deducted in full the related VAT.

According to the Bulgarian VAT legislation, the VAT taxable base is deemed to be the open market value.

The selling price of the immovable property has proven to be higher than their open market value. Therefore, the tax authorities considered that the VAT related to the difference between the selling price and the open market value is not deductible.

Case C-129/11

Provadinvest sold under VAT exemption regime, three of its plots of land together with the related steel structures to connected companies. The tax authorities considered that the sale transaction performed included a sale of land and a taxable sale of facilities.

The open market value of the facilities has proven to be higher than the selling price charged. Therefore, the Company was liable to pay VAT for the sale transactions performed.

For judgement purposes, the cases were joined.

ECJ decided that the conditions of application of art. 80(1) of Directive 112/2006/EC are exhaustive and, consequently, that national legislation cannot on the basis of that provision provide that the taxable amount is to be the open market value of the transaction in cases other than those listed in that provision, in particular where the taxable person has a full right of deduction of value added tax, which is for the national court to ascertain.

In circumstances such as those of the main proceedings, Article 80(1) of Directive 2006/112 confers to the companies concerned the right to rely on it directly to oppose the application of provisions of national legislation that are incompatible with that provision. If it is not possible to interpret the national legislation in conformity with Article 80(1) of the directive, the national court should disapply any provision of that legislation that is contrary to it.

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