Capital assets purchased in the capacity of non taxpayer
On 20 December 2005 the Belgian VAT administration restricted the right for taxpayers to deduct input VAT on goods purchased in their former capacity of non taxpayer. The Belgian VAT administration grounded this decision on two cases of the European Court of Justice, where the Court judged that out of article 17 of the Sixth VAT Directive results that only the capacity in which the concerned person acted on the moment he purchased the good, can determine if a right to deduct input VAT exists.
Out of these cases results that a private or a legal person who purchased a good in his capacity of non taxpayer and subsequently becomes a taxpayer who uses the concerned good as a capital asset for his economic activity, is not allowed to deduct the input VAT paid on this good. In this perspective, the Belgian VAT administration adapted its former point of view, where in the situation described, formerly a partial deduction of input VAT was permitted, it will no longer be tolerated by the Belgian VAT administration as from 1 July 2005.
The effect of this decision will however remain limited, it has no impact on persons (legal or private) already up and running, nor on persons who, although not registered for VAT purposes, are making expenses aiming at exercising a VAT taxable economic activity. The sole situation affected is when a person becomes a taxpayer and uses a good for his economic activity that he has bought in his capacity of non taxpayer without the aim of starting a business.
