The Court of Justice of the European Union (CJEU) in December 2016 delivered a judgment in a case concerning whether Italian domestic law concerning the turnover-based calculation to determine recoverable overhead value added tax (VAT) was compatible with EU law. The CJEU found application of the turnover calculation under Italian law is not contrary to the EU VAT Directive. Accordingly, the provision may be applied to VAT on all costs incurred by the company, and not only with respect to VAT on “mixed costs.”
The case is: Mercedes Benz Italia S.p.A. (C-378/15)
The case referral focused on whether Italian domestic legislation about the turnover-based calculation to determine recoverable overhead VAT was compatible with EU law. According to the Italian law, when the taxpayer performs both taxable and VAT-exempt supplies, this calculation (which works out the proportion of taxable supplies to total by value) would apply to VAT on all the costs incurred by the taxable person (irrespective of the specific use of goods and services).
Read a January 2017 report [PDF 74 KB] prepared by the KPMG member firm in Italy
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