Calculation of the deductible proportion of VAT

Le Crédit Lyonnais v Ministre du Budget, des Comptes publics et de la Réforme de l’État (C-388/11) 

The ECJ published its judgment in this case on 12 September 2013. Le Crédit Lyonnais sought to include the interest on loans granted by its principal establishment to its branches established outside France, in the numerator and the denominator of the deductible proportion in calculating its rate of input VAT recovery.

The Court found that “Article 17(2) and (5) and Article 19(1) of the Sixth Directive must be interpreted as meaning that, in determining the deductible proportion of VAT applicable to it, a company, the principal establishment of which is situated in a Member State, may not take into account the turnover of its branches established in other Member States.”

In addition, it held that “Article 17(3)(a) and (c) and Article 19(1) of the Sixth Directive must be interpreted as meaning that, in determining the deductible proportion of VAT applicable to it, a company, the principal establishment of which is situated in a Member State, may not take into account the turnover of its branches established in third States” and Article 17(5) of the Sixth Directive must be interpreted as not permitting a Member State to adopt a rule for the calculation of the deductible proportion per sector of business of a company subject to tax which authorises that company to take into account the turnover of a branch established in another Member State or in a third State.” Click here for the full judgment.