Unconditional recovery of VAT on construction expenses on third party real estate

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Unconditional recovery of VAT on construction expenses on third party real estate

Sponsored by

eygreece.png
Supreme Administrative Court of Greece paves the way

Nikoletta Merkouri of EY in Greece explains how the Supreme Administrative Court of Greece has paved the way for businesses to secure VAT recovery on expenses incurred for construction expenses on third party real estate.

The Supreme Administrative Court of Greece upheld, in decision 1108/2021, that the right of businesses to deduct input VAT on expenses incurred for construction works, improvements, and additions performed on third party real estate remains, even if the taxable person is not entitled – at the time the expenses are realised – to use such property for a period of at least nine years. 

The right of the business to use and perform works on third party real estate may derive from a legal relationship with the property’s owner, like a concession or leasing agreement, or even on the basis of adverse possession rights. 

This judgment was issued by invoking predominantly the Court of Justice of the European Union’s (CJEU) decision in case C-98/07 (Nordania Finans A/S and BG Factoring A/S). In this case, the CJEU upheld the position that the right given to member states based on Article 20 paragraph 4 of the Sixth Directive (provision now found in Article 189 of Directive 2006/112/EC) to define the concept of capital goods, applies only for the purposes of applying Article 20 paragraphs 2 and 3 of the Sixth Directive (provisions now found in Articles 187 and 188 of Directive 2006/112/EC), which set out the rules relating to adjustments of deductions. 

These provisions of the Directive have been transposed into Article 33 of the Greek VAT Code (Law 2859/2000). More specifically, availing of the right granted by Article 189 of the Directive, Article 33 paragraph 4 of the Greek VAT Code includes a definition assimilating construction, improvement works and additions on third party real estate to capital goods, on the condition that the business may use the property based on a legal relationship, with a duration of at least nine years. 

However, contrary to the judgment, and according to the practice followed by the Greek VAT Administration to date invoking guidelines included in Circulars issued back in 1992, the taxable person is required to hold legal possession of the third party property for at least nine years at the time when the construction works, improvements, and additions are performed. Otherwise, the business is not entitled to validly deduct or request the refund of the corresponding input VAT. 

However, according to the judgment, based on this practice, the Greek VAT Administration has – in essence – set an inadmissible time condition to the exercise of the right to deduct VAT, in the context of Article 30 of the Greek VAT Code (in so far as transposing the provisions of Articles 167 and 168 of the Directive into the Greek VAT Code). 

The direct impact of this development is that there would appear to be now grounds for businesses that incur expenses for construction works, improvements, and additions on third party real estate held for a period of less than nine years, to support input VAT deduction, despite the interpretation and approach followed thus far by the Greek VAT Administration. 

Furthermore, businesses may also examine the possibilities of filing an interest-bearing refund request for relevant input VAT amounts previously not deducted or claimed for refund, considering the applicable statute of limitation provisions or other restrictions, depending on the case. 

 

 

 

Nikoletta Merkouri

Director, EY Greece

E: nikoleta.merkouri@gr.ey.com

 

more across site & bottom lb ros

More from across our site

US partner Matthew Chen was named as potentially the first overseas PwC staffer implicated in the tax leaks scandal, in a dramatic week for the ‘big four’ firm
PwC alleged it has suffered identifiable loss and damage arising out of a former partner's unauthorised use of confidential information; in other news, Forvis Mazars unveiled its next UK CEO
Luxembourg saw the highest increase in tax-to-GDP ratio out of OECD countries in 2023, according to the organisation’s new Revenue Statistics report
Ryan’s VAT practice leader for Europe tells ITR about promoting kindness, playing the violincello and why tax being boring is a ‘ridiculous’ idea
Technology is on the way to relieve tax advisers tired by onerous pillar two preparations, says Russell Gammon of Tax Systems
A high number of granted APAs demonstrates the Italian tax authorities' commitment to resolving TP issues proactively, experts say
Malta risks ceding tax revenues to jurisdictions that adopt the global minimum tax sooner, the IMF said
The UK and what has been dubbed its ‘second empire’ have been found to be responsible for 26% of all countries’ tax losses by the Tax Justice Network
Ireland offers more than just its competitive corporate tax environment but a reduction in the US rate under a Trump administration could affect the country, experts tell ITR
The ‘big four’ firm was originally prohibited from tendering for government work until December 1 due to its tax leaks scandal, but ongoing investigations into the matter have seen the date extended
Gift this article