Luxembourg’s tax authorities have issued Circular 765-1 as additional guidance concerning the determination of input value added tax (VAT) deductions for “partial taxpayers” (that is, taxpayer engaged simultaneously in taxable or “VAT-able” and VAT-exempt transactions).
Circular 765-1 is an update to Circular 765 (15 May 2013). In Circular 765 (2013), the tax authorities clarified the method for calculating the input VAT recovery for taxable persons simultaneously conducting VAT-able and VAT-exempt economic activities. While explicitly referring to the case law of the Court of Justice of the European Union (CJEU), the guidance provided that Directive 2006/112/EC (VAT Directive) must be interpreted as allowing the EU Member States to use a more appropriate approach than one that would be based on a general pro-rata ratio standard in determining the input VAT deduction relating to certain specific businesses.
In this respect, the Luxembourg VAT authorities explicitly referred to a “direct allocation method” or a key re-partition based on analytical accounting—both being found to reflect more accurately the use of the goods and services made by a taxable person conducting a partially exempt economic activity.
Read a June 2018 report prepared by the KPMG member firm in Luxembourg
© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.