Background

The recent ruling by the Court of Justice of the European Union (CJEU) clarifies the interpretation of Article 168 of the VAT Directive, focusing on the right to deduct input VAT when services are shared within a corporate group.

The case concerns Weatherford Atlas Gip SA (hereafter X), a Romanian company that is part of the global Weatherford Group, which provides oil-related services. X acquired Foserco SA, another group company that conducted oil and gas prospecting services.

To provide these services, Foserco relied on general administrative services performed by specialized departments within other companies in the Weatherford Group. These services were billed across multiple group entities, including X. Since the companies delivering these services were established outside Romania, the VAT was subject to reverse charge.

Following a tax audit, the Romanian tax authorities refused X's right to deduct the VAT on these services. The reason? It was not proven that the services were directly linked to taxable transactions.

The Court’s Ruling

The CJEU provided a clear interpretation of Article 168 of the VAT Directive:

The tax authority cannot deny the right to deduct input VAT simply because services are shared among companies within the same corporate group, or deemed “unnecessary” or “unsuitable,” as long as those services are ultimately used for taxable transactions carried out by the taxpayer.

In short:

• Even if the services benefit multiple group members, this does not automatically exclude VAT deduction.

• It is irrelevant whether the tax authority perceives the services as "necessary" or "appropriate."

• If the services are later used for the taxpayer’s own taxable activities, the input VAT deduction must be allowed.

Implications for Businesses

This ruling provides much-needed clarity for companies operating within multinational groups. Tax authorities cannot arbitrarily refuse VAT deductions based on vague or subjective criteria like perceived necessity or group-wide use of services.

For businesses, this means:

• Companies can deduct input VAT for shared services as long as these services are eventually linked to taxable activities.

• The allocation of services within a group must be documented, but their broader benefit to other group entities does not invalidate VAT deductions.

Key Takeaway

The CJEU ruling reinforces a fundamental principle of EU VAT law: the right to deduct VAT cannot be unfairly restricted by national practices if the services are, in the end, used for taxable transactions. This decision strengthens the position of businesses facing similar disputes with tax authorities.

For further details, consult the full ruling (Case C-527/23).