Partial exemption calculation

This case concerned a mixed-use building, i.e. made up of common areas, areas used for commercial leases subject to VAT and other areas used for residential leasing (exempt from VAT).

The Court held that in this case, the principle of allocation of inputs must be first applied where it is easy to carry out in practice, which would appear to be the case for costs linked to the use or maintenance of the building when the building was being used. However, if the allocation is difficult to carry out, which would appear to be the case in respect of the costs of constructing the building, the Court acknowledges that a departure from this principle can be made. Second, concerning expenses considered as not possible to allocate, and where the Member State has made use of certain options provided for in the VAT Directive, it is possible to depart from the turnover-based method that is provided for, in principle, by the VAT Directive and to apply another method (such as a floor-space based method) in order to calculate the amount of deductible input VAT, subject to the condition that, in particular, the method used guarantees a more precise determination of the proportion of deductible input VAT than the turnover-based method.

For information, the French tax code provides for a flat-rate turnover based method to be applied to all expenses and, concerning mixed-use buildings, the French tax authorities allow for a derogation from the application of a turnover-based method in certain circumstances.

Michel Guichard

Michel Guichard, Partner, leads the Indirect Tax activity. With more than 30 years’ experience in International and French Tax law, he advises his clients on indirect tax matters. Michel is […]

Odile Courjon

Odile Courjon, Partner, has developed a strong expertise in indirect tax issues (VAT, wage taxes, excise taxes, export control and customs) in France and overseas. She advises her clients in […]

Bertrand Jeannin

Bertrand Jeannin, Partner, supplies strategic and technical advice to French and foreign multinational groups in all aspects of their VAT and customs policies. Major focuses of Bertrand’s input involve the […]

William Stemmer

William Stemmer, Partner, has more than 15 years’ experience in Indirect Tax matters. William particularly specializes in the real estate and financial sectors. William is a lecturer at the University […]