In the Gemeente Woerden case (C‑267/15), the Court of Justice of the European Union (CJEU) has held that the VAT Directive (Council Directive 2006/112/EC) does not subject the right to deduct VAT to a condition related to the use of the goods and services by the person who receives them from the taxable person. Moreover if the supply price is lower than the cost price, the deduction cannot be limited in proportion to the difference between the supply price and the cost price.

The Municipality of Woerden in the Netherlands ordered the construction of two buildings and decided to sell the buildings for an amount corresponding to approximately 10% of their cost price to a foundation that made parts of them available free of charge. The Dutch authority took the view that the Municipality of Woerden leased the buildings to the foundation on a VAT-exempt basis, therefore disallowing the Municipality of Woerden from input tax recovery.

The question was referred to the CJEU, which stated that to subject the right to deduct VAT to a condition related to the use of the goods and services by the person who receives them would imply that every transaction of a taxable person with a purchaser or a lessee who does not carry out an economic activity, such as private individuals, would limit the taxable person’s right to deduct input tax.

The CJEU therefore decided that:

“the Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, in which a taxable person has had a building constructed and has sold that building for a price less than the cost of constructing it, that taxable person is entitled to deduct all of the value added tax paid in respect of the construction of that building, and not only a part of that tax in proportion to the parts of the building which its purchaser uses for economic activities. The fact that that purchaser allows the building at issue to be used without charge is of no importance in that regard.”