The Court of Justice of the European Union (CJEU) case of Le Crédit Lyonnais v. Ministre du Budget, C-388/11 has concluded that a company with a principal establishment in an EU Member State may not take into account, for the purpose of calculating the deductible proportion of VAT, the turnover of its foreign branches.

The specific case in question involved a French bank, Le Crédit Lyonnais, which had its principal establishment in France and branches abroad. The French tax administration raised assessment for arrears of VAT for the period between 1 January 1988 and 31 December 1989 on the grounds that the bank incorrectly took into account the income of its branches established outside France in order to calculate the deductible proportion of VAT applicable to the bank.

The judgement issued by the CJEU ruled against the bank on the grounds that the Sixth Directive does not permit the turnover of a company’s branches established in other Member States or third countries to be taken into account when calculating the deductible proportion of VAT of the parent company.