CJEU: Can VAT be deducted on unnecessary shared services
In Weatherford Atlas Gip SA (C-527/23), the Court of Justice of the European Union held that the tax authority cannot deny a VAT deduction solely on the grounds that the services purchased were not necessary or appropriate for the company’s economic activity. If the services received were used for the purpose of carrying out taxable transactions, the right to deduct VAT must be accepted.
Weatherford Atlas Gip specialised in the extraction of oil and gas. The tax authority refused to accept the company's VAT deduction on administrative services the company purchased. These services were also used by other companies in the group (not a VAT group) and benefited the group as a whole. Although the costs of the services were shared between the companies, the tax authorities argued that they should not have been invoiced to Weatherford Atlas Gip as they were not necessary for the company. According to the tax authorities, the company had not demonstrated a link between the purchased services and its taxable activities.
In its judgment, the CJEU reiterated that if a taxable person uses the acquired services for the purposes of its taxable supplies, it has the right to deduct the paid tax. There must be a direct and immediate link between the purchased services and the output supplies, which is indicated, e.g. by the price of the purchased services being included in the price of the output supplies. The price of the purchased services may also be part of general (overhead) costs that are directly related to the company’s overall economic activity.
According to the CJEU, the question whether the acquisition of administrative services was appropriate or necessary for the company is irrelevant. The right to deduct does not depend on the economic profitability of the supply received, nor is it affected by the same administrative services being provided simultaneously to several companies in the group. However, it is for the referring court to satisfy itself that the part of the costs relating to those services incurred by the company actually corresponds to the services supplied to that company for the purposes of its taxable supplies.
Therefore, to claim a VAT deduction, it is necessary that the company use the received administrative services for the performance of its taxable supplies and that there is a direct and immediate link between the received services and the taxable supplies, or that the costs are part of the company's general (overhead) costs.