A long-term care establishment (EHPAD) was subject to VAT reassessments on the ground that the general administration, functioning and buildings maintenance costs could only be deducted in accordance with the prorata.
Based on ECJ case law “AB SKF”, the Conseil d’Etat enunciates that the existence of a direct and immediate link implies, both for expenses which may be allocated and for overhead costs, that the upstream supplies costs are respectively incorporated in the price of the particular downstream operations or in the price of goods or services provided by the taxable person as part of its business activities. The Conseil d’Etat also considers that the VAT related to the expenses used both for taxable and exempt operations may be fully recovered, in the situation where the company is required to pass on the totality of the expenses costs solely into the price of the taxable operations.
Therefore, the financial allocation prevails over the functional allocation.
We consider at this point that the solution identified by the Conseil d’Etat must be confined to the EHPAD’s case, that is where the applicable regulation (here, the Social action and families Code) compels to allocate these costs to determined taxable amounts.