Partial exemption calculation

This case concerned a mixed-use building, i.e. made up of common areas, areas used for commercial leases subject to VAT and other areas used for residential leasing (exempt from VAT).

The Court held that in this case, the principle of allocation of inputs must be first applied where it is easy to carry out in practice, which would appear to be the case for costs linked to the use or maintenance of the building when the building was being used. However, if the allocation is difficult to carry out, which would appear to be the case in respect of the costs of constructing the building, the Court acknowledges that a departure from this principle can be made. Second, concerning expenses considered as not possible to allocate, and where the Member State has made use of certain options provided for in the VAT Directive, it is possible to depart from the turnover-based method that is provided for, in principle, by the VAT Directive and to apply another method (such as a floor-space based method) in order to calculate the amount of deductible input VAT, subject to the condition that, in particular, the method used guarantees a more precise determination of the proportion of deductible input VAT than the turnover-based method.

For information, the French tax code provides for a flat-rate turnover based method to be applied to all expenses and, concerning mixed-use buildings, the French tax authorities allow for a derogation from the application of a turnover-based method in certain circumstances.

Michel Guichard

Michel Guichard, as a Partner, was responsible for the Indirect Tax (VAT Customs) practice and then for the Tax Litigation practice dedicated to assisting clients in national and EU litigation. […]

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Barrister registered with the Hauts-de-Seine Bar, he started my career in the indirect tax service line of Deloitte Société d’Avocats in 1999. My current position is Director. My area of […]

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Delphine Nicault is an Attorney-at-Law at the French Bar. She joined Deloitte in 2002 and assists her clients on day-to-day VAT issues. She developed an expertise in the VAT and […]