Disproportion Between Costs And Income Does Not Prevent Input VAT Recovery

IN A RECENT DOMESTIC CASE (CASE CAS-2021-00028 DATED 17 MARCH 2022), THE LUXEMBOURG COURT OF CASSATION HAD THE OPPORTUNITY TO ADJUDICATE AT LAST INSTANCE ON A CONDITION FOR THE RIGHT TO DEDUCT VAT ASSERTED BY THE LUXEMBOURG VAT AUTHORITIES: NAMELY, THAT THE AMOUNT OF TAXABLE TURNOVER BE AT LEAST AS HIGH AS THE COSTS IN RESPECT OF WHICH THE DEDUCTION IS CLAIMED.

Background

In the case at hand, the taxable person (the "Company") was an active holding company of a real estate group with (i) shareholding activity outside the scope of the VAT regime, not entitling the Company to deduct VAT; (ii) financing activity that was in scope but VAT exempt, not entitling the Company to deduct VAT and (iii) taxable management activity towards its subsidiaries, for which the Company was entitled to deduct VAT.