LISBON: Portuguese Government has said that it is reviewing a recent decision by the European Court of Justice with a view to amending the country’s value-added tax regime with regards to the leasing and letting of property.
Assistant Secretary of State for Finance Ricardo Mourinho Felix told reporters at the last meeting of European Union finance ministers that the Government would soon take the necessary steps to align Portugal’s VAT law with the ECJ’s ruling.
In February 2018, the ECJ decided against the Portuguese tax and customs authority in favor of a taxpayer who challenged the authority’s decision that it should be retroactively precluded from deducting tax incurred on inputs in relation to a supply of leasing and letting transactions.
Portugal has elected to derogate from the general rule provided in Article 135(1)(l) of the VAT Directive, that leasing and letting transactions should be generally exempt from VAT. Therefore, in Portugal, such transactions may be taxable, generally allowing taxpayers to claim input tax credits.
However, the tax and customs authority required the taxpayer in the case, Imofloresmira, to make adjustments to VAT deductions on the ground that the properties at issue had been unoccupied for over two years and were therefore regarded as no longer being used for the purposes of its own taxed transactions, even though, during that period, the company always had the intention of letting those properties and undertook the necessary steps to that end.
