In 2016, Weatherford Atlas Gip acquired Foserco SA, a Romanian company. Foserco’s business was to provide ancillary services for oil and gas production. In the years following the acquisition, Foserco SA paid for administrative services (IT, HR, marketing, etc.) to other companies within the Weatherford group.
The Romanian tax authorities disallowed VAT deductions on the payments for these services because, in their view, there was no evidence that the services were used for taxable transactions.
The case was brought before the Romanian Regional Court, which decided to stay proceedings and refer the following questions to the EU Court of Justice for a preliminary ruling
‘(1) Must Article 168 of [the VAT Directive], read in the light of the principle of fiscal neutrality, be interpreted as precluding, in circumstances such as those in the main proceedings, the tax authority from refusing a taxable person the right to deduct the [VAT] paid in respect of administrative services acquired, where it is established that all the costs recorded for the services purchased have been included in the taxable person’s general costs and that the taxable person carries out only taxable transactions, that the supply of services is expressly confirmed by the tax authority and that the tax treatment applied is that of the reverse charge procedure (which precludes a loss to the Treasury)?
(2) For the purposes of interpreting the provisions of Articles 2 and 168 of [the VAT Directive], in circumstances such as those in the main proceedings, may the services of management and administration (namely assistance and consultancy in various fields, financial and legal advice) provided between intra-group companies for the benefit of different members of the group be regarded by each member in part as being used for the purposes of taxable transactions, that is to say, acquired for its own purposes?
(3) For the purposes of interpreting Article 2 of [the VAT Directive], where it is established that intra-group services are not supplied to a member of the group, may a company which is part of the group but is deemed not to have benefited from such services be regarded as a taxable person acting as such?’
Ruling of the Court
The EU Court of Justice answered the questions as follows
It is for the referring court to ascertain, in the first place, that the purchases of administrative services at issue in the main proceedings are transactions subject to VAT and to that end, the referring court will have to ascertain whether there is a direct link between those services and the consideration paid by Foserco.
“34 The fact that the administrative services at issue in the main proceedings are provided simultaneously to several recipients appears to be irrelevant in that regard. By contrast, it is for the referring court to satisfy itself that the proportion of the costs relating to those services, borne by the taxable person, actually corresponds to the services which it received for the purposes of its own taxed output transactions.
35 The question whether the purchase of the administrative services at issue in the main proceedings was necessary or appropriate also seems irrelevant, since the VAT Directive does not make the exercise of the right of deduction subject to a criterion of the economic profitability of the input transaction. The common system of VAT is intended to ensure neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT. Therefore, the right to deduct, once it has arisen, is retained even if the intended economic activity was not carried out and, therefore, did not give rise to taxed transactions or if the taxable person was unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond its control…..
36 As regards, lastly, the burden of proof, it is settled case-law that it is for the taxable person seeking deduction of VAT to establish that it meets the conditions for eligibility….
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38 Consequently, Article 168 of the VAT Directive must be interpreted as precluding national legislation or a national practice under which the tax authority refuses the right to deduct input VAT paid by a taxable person when acquiring services from other taxable persons belonging to the same group of companies on the grounds that those services were supplied at the same time to other companies in that group and that their purchase was not necessary or appropriate, where it is established that those services are used by that taxable person for the purposes of its own taxed output transactions.”