Posts tagged Deduction

Crédit Lyonnais VAT case

In the Crédit Lyonnais VAT case the CJEU has found that a company which operates branches outside the Member State of its headquarters and which performs activities that give rise to a VAT deduction right and activities that do not, must not take into account the turnover of its foreign branches for the calculation of its input VAT-deduction right.

Crédit Lyonnais is a credit institution with a head office located in France and with branches both within and outside the European Union. In computing its deductible proportion of VAT for the period from 1 January 1988 to 31 December 1989, the head office of Crédit Lyonnais took into account interest arising under loans granted by it to its foreign branches. The French tax authorities challenged the calculation of the deductible proportion of VAT on the basis that transactions entered into between a head office and its foreign branches are disregarded for VAT purposes  and that the interest received was therefore improperly taken into account.

This decision once again highlights the lack of ‘harmonised’ practice in the EU with respect to the inclusion of branches’ turnover for the calculation of the head office’s deductible proportion. It also must put in doubt VAT calculations being carried out by all businesses with branches in other member states.