Deduction on Motor Cars and Petrol

On the 18th June the European Court of Justice ruled that the French Republic was not acting ultra vires the Sixth Directive (77/388/EEC) and, in particular Article 17(2) thereof, by maintaining in force local legislation denying taxable persons the right to deduct VAT on means of transport acquired by them. In taking the case to Court, the European Commission argued that the French Republic had failed to fulfil its obligations under the Sixth Directive. The European Court of Justice found that there were many provisions in the Sixth Directive which enabled Member States to maintain in force, legislation which denies taxable persons the right to deduct VAT on expenditure, such as means of transport. Accordingly it found that the French Republic had not failed in its obligations under the Sixth Directive.

During 1996 and 1997 a number of Irish taxpayers and agents submitted protective claims in relation to the blockage of input credit on motor vehicles and petrol pending the hearing of this legal challenge. In response Revenue stated that, in their opinion, the relevant Irish legislation (Section 12(3)(a)(iii) of the VAT Act 1972, as amended) is fully in accordance with the EC Sixth VAT Directive and with Community law generally (see Tax Briefing - Issue 16).

The decision by the European Court of Justice supports this position.

It is intended to reply individually to those taxpayers and agents who submitted protective claims. However, we would be obliged if practitioners would, where possible, also advise their clients of the position.