EU unveils plans for new VAT deduction mechanism
Monday January 11, 2010
The EU has announced plans to implement a new mechanism for deducting VAT on property.
According to the EC Council, the Lennartz mechanism for deducting VAT on immovable property for both business and private use will be removed, with the changes taking effect from January 1st 2011.
In place of the Lennartz mechanism, there will be a new pro-rata system used, which will deduct VAT based on the proportion of the property that is actually used for business purposes.
The EC Council explained that EU member states will have the option of applying the new deduction rules to other goods that are deemed to form part of companies’ business assets.
Furthermore, the EC Council said rules for determining the place of taxation ensure that VAT is levied at the place where natural gas, electricity, heat and cooling energy are actually being consumed by the customer.
Another important regulation, the EU VAT Package, was introduced at the start of this month, which means services supplied to a business in another EU member state will be treated as having been supplied where the customer is established.