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Luxembourg: Guidance concerning input VAT deduction for “partial taxpayers”

Luxembourg: Input VAT deduction for “partial taxpayers”

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).


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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

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