[Global IDT Insights] ECJ Rules on VAT Credit Availability & Others

Editorial Team – [2024] 169 taxmann.com 352 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. ECJ Rules on VAT Credit Availability

The case involved Weatherford Atlas Gip (Weatherford) located in Romania providing oil services and the National Agency for Tax Administration which is the Tax Authority of Romania (hereinafter referred to as ‘Tax Authority’). Weatherford took over Foserco, also located in Romania, which offered support services for oil and gas extraction.

Before takeover by Weatherford, Foserco purchased certain administrative services such as IT, HR, Marketing, Accounting and Consultancy services, outside Romania and applied reverse charge mechanism, as required for VAT compliance. Tax Authority of Romania denied Weatherford’s right to deduct input VAT for these services.

The primary issue was whether right to deduct input VAT could be denied to Weatherford on the grounds that the administrative services acquired by Foserco before merger, were not exclusively used for Foserco’s outward taxable activities being support services for oil and gas extraction.

Weatherford (The Petitioner) argued that the administrative services formed part of Foserco’s general costs, directly contributing to its taxable activities. Weatherford contended that VAT law does not require proving the necessity or appropriateness of services as long as they are linked to taxable transactions and fiscal neutrality is maintained.

Tax Authority argued that the inward administrative services were not sufficiently linked to Foserco’s outward taxable activities, questioned about their necessity & claimed the documentation provided was inadequate to establish a direct link between them.

The European Court of Justice (ECJ) ruled in favour of Weatherford. It held that under Article 168 of the VAT Directive, the right to deduct input VAT cannot be denied if the services are objectively used for taxable activities. The court reasoned that fiscal neutrality is fundamental, and assessments of necessity or appropriateness by tax authorities are not tenable.

Source: Court Judgment

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