ECJ Settles Dispute On VAT Deduction Abort Costs

In its judgment of 12 November 2020 in the 'Sonaecom' case (C 42/19), the European Court of Justice (ECJ) ruled that a company can deduct VAT on abort costs, provided the company intended to render VAT taxed services to the envisaged target. The ECJ thereby confirmed the line it set out in previous rulings and provided further guidance on the conditions for deduction of VAT on abort costs, including circumstances under which VAT deduction was not allowed.

Facts

The taxpayer in this case, Sonaecom, was a holding company that rendered VAT taxed services to some of its subsidiaries. Sonaecom intended to acquire a telecom company, Cabovisão, and in that respect incurred VAT on costs for (i) consultancy services connected with a market study and (ii) banking services connected with securing funding for the intended acquisition. However, the acquisition did not materialize and Sonaecom instead used the funds to provide an interest-bearing loan to its EU based parent