Are you one of the entrepreneurs who trade in goods that are not in their ownership? If you answered yes to the previous question, you should pay close attention to this article.

Many entrepreneurs import foreign goods from abroad as a part of their business activities. These goods are most often subsequently used for further processing, rented, or imported into a consignment warehouse.

In practice, we encounter situations where VAT payers deduct import VAT on such goods. However, a problem may arise in case you deduct input VAT on imported goods that are not owned by you. The tax authorities may refuse to recognize your right to deduct input VAT.

However, following the case law of the Court of Justice of the European Union C-621/19, import VAT on goods that are not in your ownership can still be deducted in a certain circumstance. Based on this case law, if you do not own the imported goods, you can deduct import VAT but only if it can be proven that you incurred the costs of importation that:

• relate to the performance of your business activity as an importer,
• are part of your total costs reflected in the final output price, which should be borne by you as the importer/lessee of this leased asset.

The European Commission (EC) has even recently commented on the issue in its Working Document no. 1061. In this document, the EC refers to its previous Working Document no. 762 which concerns aircraft leasing and the VAT deduction. When an aircraft to be leased is imported, the second condition mentioned above is not fulfilled, as the total cost of the leased aircraft is not borne by the importer/lessee but is only partially passed on to the importer/lessee in the form of lease payments made by the importer/lessee to the owner of the aircraft.

Although this working document deals with the leasing of an aircraft, it is necessary that its conclusions are applied broadly in the context of the interpretation of the possible deduction of input VAT on leased assets. For imports of goods where it cannot be proven that the costs incurred are reflected in the price paid by the customer and that they are related to the performance of your economic activity, you are not entitled to deduct input VAT.