Portugal: VAT rate for elevator repairs and maintenance (CJEU judgment)

Court of Justice of the European Union (CJEU) judgment concerning the VAT rate for renovation and repairs of elevators in residential buildings

Court of Justice of the European Union (CJEU) judgment

The Court of Justice of the European Union (CJEU) issued a judgment concerning (1) the value added tax (VAT) rate for renovation and repairs of elevators in residential buildings, and (2) the VAT rate for the regular maintenance of elevators.

Background

The taxpayer—a Portuguese company that manufactures elevators and provides elevator repair, renovation, and maintenance services—applied a reduced VAT rate to its services, while the materials used were charged at the standard rate of VAT. The taxpayer believed that it had proceeded in accordance with EU law, as it classified services related to elevators, which it regarded as a common part of immovable property, as services relating to private dwellings.

However, the Portuguese tax authorities took the view that services relating to the renovation and maintenance of elevators were subject to the standard rate of VAT and assessed additional VAT on those services.

CJEU judgment

The CJEU first noted that the application of a reduced VAT rate constitutes a derogation from the principle of applying the standard VAT rate, and therefore must be interpreted restrictively. The court then assessed whether the reduced rate could be applied to renovations and repairs of residential elevators, pointing out that it only applies to work (i.e., the services provided) and not the materials used. The CJEU further stated that renovation and repair services are occasional activities and therefore qualify for the reduced rate. On the other hand, elevator maintenance services are provided by the taxpayer on a regular and continuous basis and are therefore not subject to a reduced rate.

The court then considered whether a reduced rate of VAT could be applied only for renovation and repair services related to private dwellings. According to the CJEU, the term “private dwellings” means immovable properties used for private housing purposes and that:

  • For services related to properties used for other purposes, the standard rate of VAT must be applied.
  • For immovable properties that include both units for private housing and units intended for other purposes, VAT rates for elevator renovation and repair services must be allocated proportionally; however, the CJEU did not provide any guidance as to how taxpayers are to determine such proportion.

Summary

The CJEU concluded that a reduced VAT rate can only be applied to renovations or repairs of elevators in immovable properties intended exclusively for private housing. For regular elevator maintenance services, the standard VAT rate is always to be applied. For immovable properties when both units for private housing and units intended for other purposes are located, the VAT rate for renovations and repairs of elevators are to be allocated proportionately.

Read a June 2022 report prepared by the KPMG member firm in the Czech Republic

 

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