Proportionate input tax credit

Entitlement to input tax credit is available to business owners where it concerns goods and/or services sourced in connection with value added tax charged activities performed by the business in question. Business owners who utilise goods and/or services in connection with a mix of activities some of which are charged with value added tax whereas others are not are entitled to partial input tax credit calculated on the basis of their turnover ratio.

A housing association posted aggregate sales in 2009 in the amount of € 115.6 million, of which € 19.8 million related to value added tax charged activities and € 95.8 million, to value added tax exempted activities. The corporation achieved another € 16.8 million in sales owing to the sale of let dwellings. The Leeuwarden Court of Appeal ruled that no allowances would be having to be made by the housing association, in connection with the computation of the input tax credit, for the value added tax exempted turnover from the divestment of dwellings. The State Secretary for Finance appealed this ruing in cassation.

No allowances are made where the computation of the input tax credit is concerned for the divestment by a business owner of goods having previously been put to use within the relevant business. This follows directly from the Value Added Tax Directive 2006. According to a 2008 ruling by the European Court of Justice, the above does not apply in so far as the divestment of the capital goods qualifies as a customary economic activity where the relevant entrepreneur is concerned.

The Leeuwarden Court of Appeal had adopted as its position that the housing association could not be said invariably to divest itself of its lets on expiry of a pre-set term of use of the dwellings in question by the housing association’s tenants, nor did the divestment of the dwellings in question represent an unavoidable activity where the housing association was concerned. The Supreme Court established that the Court of Appeal’s ruling could not be construed as an erroneous interpretation of the law and dismissed the State Secretary’s appeal in cassation.