Milan, Italy

ECJ Case C-334/20: VAT deductions on advertising services paid for in excess of the market price

 By Pasquale Della Corte, COMMA 10

 The Court of Veszprém in Hungary submitted this preliminary matter to the ECJ (European Court of Justice) concerning the interpretation of art – section 168(a) of Directive 2006/112/ EC regarding the right to deduct VAT for advertising services which are not profitable, either because the services were disproportionate to the revenue generated, or because they failed to generate any sales revenue for the recipient.

The ECJ declared that a taxable person may deduct the VAT on advertising services when they present a direct and immediate link to one or more taxable downstream operations, or to all of the taxable person’s economic activity, with respect to their overhead costs. The ECJ also pointed out that it is not necessary to take into consideration the following factors:

  • the price invoiced for such services is excessive in relation to a reference value defined by the national tax authority;
  • the fact that such services have not given rise to an increase in that taxable person’s sales revenue.

The right to deduct VAT is not, in fact, subject to any principle related to the increase in the taxable person’s sales revenue or to the economic profitability of the transaction initially carried out.

The ECJ also pointed out that the taxable amount for VAT purposes corresponds to the open market values of the transactions only in respect to the supply of goods and services to recipients with whom there are family or other close personal, management, ownership, membership, financial or legal ties.

The ECJ emphasised that the common system of VAT ensures neutrality of taxation of all economic activities, whatever their purpose or result, provided that they are themselves subject, in principle, to VAT.

This decision would appear to make clear that the “Arm’s Length Principle” criteria adopted by the member states with respect to income tax cannot automatically be applied for purposes of VAT, to the extent of precluding the deduction of that tax.

Pasquale Della Corte

Pasquale Della Corte

GGI member firm
Chartered Accountants & Lawyers, Advisory, Auditing & Accounting, Corporate Finance, Tax
Milan, Italy
T: +39 02 481 9258
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COMMA 10’s cornerstone is the professional collaboration between chartered accountants and lawyers and it offers its clients complete and inter-disciplinary services related to accounting, corporate, and tax services, in the legal area and, referring to the business area, corporate restructuring, and bankruptcy. COMMA 10 is based in Milan and provides integrated services to individuals and private and public companies, as well as non-profit organisations.

Pasquale Della Corte is a Chartered Accountant and has over ten years of experience in VAT and international tax, advising foreign companies with subsidiaries and branches in Italy. He is also a member of the study commission for non-profit institutions of the Institute of Chartered Accountants of Rome.

Publsihed: Indirect Taxes Newsletter, No. 13 Spring 2022 l Photo: neiezhmakov -


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