Verifying entrepreneurship on the basis of turnover thresholds not allowed – right to deduct not dependent on the level of turnover

Entrepreneurship plays an important role in the VAT system. Whether one qualifies as an entrepreneur can only be assessed on the basis of the performance of economic activities (or the intention to do so). Moreover, the result of those activities does not play a role in this regard. In this case, the question had to be answered whether the turnover criterion applied in Italy is a valid criterion for assessing entrepreneurship. The Court of Justice is short and clear about this, this is not a valid criterion. Only if a tax authority can prove that no economic activities are being carried out can the entrepreneurship be withdrawn for VAT purposes.

In the same case, the question was raised whether the right to deduct VAT can be denied because the trader remains below a certain turnover threshold. Again, the answer is clear: no such requirement can be made. An exception to this is in the event of abuse of rights or fraud. In this case, the aim of the scheme was to combat fraud by discouraging the creation of shell companies. An important mechanism in this scheme is the presumption that there is no operating company if the turnover remains below a threshold. There is no place for such a mechanism in the VAT system. The right to deduct VAT can only be refused if it is established that there has actually been an abuse of rights or fraud.

In the Netherlands, we do not have any turnover criteria for determining entrepreneurship for VAT purposes or for determining the right to deduct VAT. This does not alter the fact that in the absence of turnover, entrepreneurship can come to an end. Usually, the entrepreneur will first receive a letter with a request for further explanation of the situation. If the letter remains unanswered or if the substantiation of the entrepreneurship is insufficient, the entrepreneurship can be withdrawn.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com