How to Make Adjustments of VAT Deductions in the Lease of Immovable Property


The ruling of the Court of Justice of the European Union (CJEU) regarding the case of Imofloresmira of February 2018 brings positive results for VAT payers engaged in business with immovable properties.

The Portuguese company with principal business activities in the purchase, sale, letting and management of residential and commercial properties made a claim for VAT deduction relating to several properties that it owned and for which it selected the taxation treatment. However, these properties were vacant for more than two years, as the company was not successful in letting them, the Portuguese tax authority insisted on adjusting the VAT deduction. 

The CJEU stated that the company did not need to retrospectively adjust the claim for the tax deduction even though it did not use the properties for the purpose which gave rise to the possibility to claim the deduction if this situation occurred by reason of circumstances beyond its control. In a contrary case, the principle of VAT neutrality would be breached.

From the perspective of the Czech VAT payer, the ruling represents a possibility to retain the used deduction even if it is not possible to let the owned immovable property despite demonstrable efforts to do so, e.g. as a result of an economic crisis.