VAT: Recovery right on the basis of cross-border use costs

VAT: Recovery right on the basis of cross-border use costs

25 January 2019

On January 24, 2019, the Court of Justice of the European Union (‘CJEU’) rendered its judgment in the Morgan Stanley & Co International plc (‘Morgan Stanley’) case (case no. C-165/17). This case concerns the VAT recovery of costs incurred by a fixed establishment that are also used for the turnover of a foreign head office. In answer to the question how the VAT recovery on such costs should be calculated, the CJEU replied that the turnover of the foreign head office should be taken into account. Depending on the use made of the costs, the recovery right should be calculated on the basis of the turnover of the fixed establishment and/or the turnover of the head office. VAT can only be recovered if turnover is generated, for which there is a VAT recovery right, according to both the VAT rules of the head office’s country of residence and the VAT rules of the fixed establishment’s country of residence. The judgment differs from Dutch practice on a number of points.