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National requirements on pre-registration VAT deductions could lead to financial losses
Businesses sometimes incur VAT on goods before completing their VAT registration. In practice, national tax authorities may refuse deduction of that VAT where the national law conditions for deduction are not met, e.g. when the goods are no longer physically present on national soil at the date of effective registration.
Businesses affected by this issue may face the permanent loss of input VAT incurred before registration, alongside retroactive VAT assessments, interests, and financial penalties.
They can also encounter complex disputes concerning stocks, goods in transit, or items already supplied to customers, as well as inconsistent treatment of pre-registration acquisitions across different EU Member States.
A recent EU VAT development may open the door to recovering costs incurred before completing VAT registration
A recent ruling by the EU General Court in Case T-84/26, Rotex Europe Ltd, challenges the practice of national tax authorities denying VAT deductions on pre-registration transactions simply because the goods are no longer physically present on national territory on the registration date.
The Court held that the right to deduct input VAT cannot be refused on the sole ground that the goods acquired before registration were no longer physically present when the VAT registration took effect.
Key Actions for Businesses Following the New EU VAT Ruling
Following this recent ruling, businesses should consider reviewing:
· VAT incurred on goods acquired before registration
· The timing of their taxable supplies and VAT registration
· Supporting invoices and evidence of business use
· Any previous VAT deduction refused pre-registration
Depending on the circumstances, the decision may support a reclaim, an objection to an assessment, or a review of the business’ VAT registration procedures.
The expert’s eye
VAT registration should never trigger the automatic loss of input VAT pre-registration when the fundamental conditions for deduction are fully satisfied.
Nonetheless, every situation requires a careful, case by case evaluation. The outcome relies heavily on the specific nature of the goods, the exact timing of the transactions, your supporting evidence, and the relevant national rules.