CJEU's surprising conclusion on VAT rate for elevator repairs

The Court of Justice of the EU has ruled on the VAT rate for renovation and repairs of elevators in residential buildings and has also dealt with the VAT rate for the regular maintenance of elevators. In both cases, the conclusions are rather surprising.

The Portuguese company DSR manufactures elevators and provides elevator repair, renovation and maintenance services. The company applied a reduced VAT rate to its services, while the materials used were charged at the standard rate. The company believed that they had proceeded in accordance with EU law, as they classified services related to elevators, which they regarded as a common part of immovable property, as services relating to private dwellings. However, the Portuguese tax authorities took the view that services relating to the renovation and maintenance of elevators were subject to the standard rate of VAT and assessed additional VAT on those services.

The CJEU first noted that the application of a reduced VAT rate constitutes a derogation from the principle of applying the standard rate, and therefore must be interpreted restrictively. The court then assessed whether the reduced rate could be applied to renovations and repairs of residential elevators, pointing out that it only applies to work, i.e., the services provided, and not the materials used. The CJEU further stated that renovation and repair services are occasional activities and therefore qualify for the reduced rate. On the other hand, elevator maintenance services are provided by the company on a regular and continuous basis and are therefore not subject to a reduced rate.

The court then considered whether a reduced rate of VAT could be applied only for renovation and repair services related to private dwellings. According to the CJEU, private dwellings mean immovable properties used for private housing purposes. For services related to properties used for other purposes, the standard rate of VAT must be applied. For immovable properties that include both units for private housing and units intended for other purposes, VAT rates for elevator renovation and repair services must be allocated proportionally; however, the CJEU did not provide any guidance as to how the taxpayers should determine such proportion.

To conclude: the CJEU rather surprisingly summarised that a reduced VAT rate can only be applied to renovations or repairs of elevators in immovable properties intended exclusively for private housing. For regular elevator maintenance services, the standard VAT rate shall always be applied. For immovable properties where both units for private housing and units intended for other purposes are located, the VAT rate for renovations and repairs of elevators should be allocated proportionately.

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