8.1 Deduction of VAT – general

The VAT deduction system is meant to relieve businesses entirely of the burden of the VAT payable or paid in the course of all their economic activities. Based on consistent CJEU case law, the EU VAT system consequently ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT.1

To give rise to the right to deduct VAT, the goods or services acquired must have a direct and immediate link with the output transactions which give rise to the right to deduct.2 In principle, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is necessary before a taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement.