Article 45 §2 of the Belgian VAT Code violates the Sixth VAT Directive
One of the changes in the field of VAT the Program Bill of 27 December 2005 brought along is the rewriting of article 45 § 2 of the Belgian VAT Code, which deals with the deduction limitations in connection to cars. One of the changes carried out in this article relates to the fact that full deductibility of VAT relating to the letting or selling of cars will be restricted.
From now on the full deductibility of input VAT is only possible for ‘the letting of vehicles by a taxpayer who has an economic activity in letting vehicles to whosoever’ or for ‘the selling of vehicles by a taxpayer who has an economic activity in selling vehicles to whosoever’. As a consequence it will for instance no longer be possible for a car dealer to fully deduct the input VAT on the letting of cars because of the sole fact that a car dealer mainly sells cars and does not let cars to wohsoever. Only clients can benefit from the latter service.
One can question the conformity of the abovementiond provisions with the standstill clause as incorporated in the Sixth VAT Directive (art. 17.6). In principle the Member States can only preserve the exclusions from from the right to fully deduct input VAT that existed allready on the moment the Sixth VAT Directive came into effect. Thus it is not allowed for Member State to introduce new exclusions nor to enlarge the the scope of existing exclusions from the right to fully deduct input VAT.
In this case, the new provisions of article 45 § 2 can only be interpreted as the enlargment of the scope of an existing exclusions. As a result thereof we have to conclude that the Sixth VAT Directive violated.
