CJEU: Right to deduct VAT in full also for expenses benefiting a third party

Applicant Vos Aannemingen was engaged in the sale of apartment buildings it had built on land belonging to third parties. The company sold the apartments, and the landowners sold shares in the land corresponding to the apartments. The company covered all advertising and administrative costs as well as the real estate agents’ commissions, and claimed full VAT deduction on these transactions. However, the Belgian tax authorities were of the opinion that the company was only entitled to deduct VAT to the extent that it related to the sale of the houses/apartments, not to the sale of land.

The company argued that there was a direct and immediate link between the expenditures and its economic activity. Also, the benefit to a third party was ancillary, as the company incurred the expenditures mainly for the purpose of its own economic activity.

The Court has previously held that where there is a direct and immediate link between the supplies received and the taxable person’s economic activity, that person is entitled to deduct VAT even if a third party also benefits from the supplies. The benefit is then regarded as ancillary if the supplies are carried out in the taxable person’s own interest. In the case in question, the CJEU found that the benefit to a third party could be regarded as ancillary and therefore could not limit the scope of the company's right to deduct.

As for the scope of the right to deduct, it is also important to consider whether the expenditures are part of the taxable person’s general overhead or whether they are attributable to specific output transactions. Should it become apparent that a certain part of the expenditures was incurred solely for the purpose of selling land, the company would not be entitled to deduct VAT on that part of the expenditures.