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IDEFF Notebooks

The Right to Deduct VAT

The Particular Case of Mixed Use Inputs - Cadernos IDEFF | Nº. 15 - Rui Manuel Pereira da Costa Bastos

Guarantee of neutrality, a structuring principle of the common system of Value Added Tax (VAT), the right to deduct is conditioned to the existence of a direct and immediate relationship between the goods and services acquired (inputs) and the operations that, by inserting within the perimeter of the concept of economic activity, they are taxed. The deduction will, however, be partial if those inputs are mixed, that is, simultaneously allocated to taxed transactions or non-taxed transactions because they are exempt from VAT or simply out of its scope. In these circumstances, the deduction of VAT should be proportional to the transactions that give rise to the right to deduction. This proportionality, in the particular case of the commonly called "mixed liabilities", should be measured, from an ex ante perspective, depending on the actual allocation method, based on an accounting separation based on objective criteria for the allocation of inputs, or, in a perspective ex post, in the method of deduction percentage or pro rata, which takes as reference the outputs of each activity, materializing the turnover. The determination of the amount of tax to be deducted, either at an initial moment or, as in the particular case of investment goods, at a subsequent moment, within the scope of the two categories of mixed inputs shown, the mixed taxable persons and the private consumption, constitute the central object of this study, analyzing the underlying techniques, the "pro rata" and "real affectation", aiming at the clarification of autonomous concepts of EU law such as "economic activity", taxed "grants", financial and real estate transactions " accessories" and "investment goods and services", comparing the jurisprudence of the TJUE, with doctrinal supports and with the administrative practice of the Tax and Customs Authority. We are, unequivocally, facing one of the sources of complexity of European VAT that sometimes raises doubts about the guarantee of neutrality in the calculation of the proportion of VAT deduction for mixed inputs.

Keywords: VAT deduction, mixed taxable persons, pro rata, principle of fiscal neutrality.


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