Tax cases - Mixed use goods

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Tax cases

Mixed use goods

A taxpayer, who bought a car which he used mainly for the purposes of his haulage business in Germany, was unable to deduct VAT on the purchase because he had bought it from a private individual. When he later sold the car, the invoice did not show any VAT. While he owned the car, he carried out repairs on it and deducted the VAT on the costs as input tax. The tax authority treated the sale of the car as subject to VAT and assessed it accordingly.

The European Court of Justice was asked for a preliminary ruling on:

* whether a trader could allocate goods used for mixed business and non-business purposes wholly to his private assets;

* whether the disposal of goods acquired from a private individual was fully liable to VAT.

The European Court of Justice said that under Article 2(1) of the Sixth Directive, it was a precondition of a transaction being subject to VAT that the taxable person acted 'as such'; therefore a transaction carried out in a private capacity could not be taxable. Furthermore, the Court rejected the argument that the deduction of VAT on expenses necessarily meant that the item was integrated into business assets, as the right to deduct VAT levied on goods and services for the use and maintenance of a capital item was a separate matter within Article 17.

Secondly, a taxable person who sold a business asset acted in a business capacity. Thus when a taxpayer, who incorporated into his business assets a capital item, sold it, the sale would be subject to VAT regardless of whether the item had been used for both business and private purposes. If the item was only partially incorporated, then it would be subject only to VAT in part. If the item was withdrawn from the business, no tax could be levied on the withdrawal, as the residual VAT was non-deductible for the purposes of Article 5(6), and since any subsequent sale would be private, no VAT would be chargeable on the sale.

(Bakcsi v Finanzamt Fürstenfeldbruck (Case C-415/98), European Court of Justice, 8 March 2001.)

Issue: 3799 / Categories: