VAT focus: Pactor Vastgoed – a possible challenge to the CGS

The recent CJEU case of Pactor Vastgoed concerns the Dutch option to tax system. The court held that any adjustment to a deduction from which a taxable person had benefited must be made on that person. This has potential UK implications where a person recovers input tax on a capital item and then transfers the property as part of a TOGC; here, HMRC’s approach is that the clawback of any VAT incurred by the seller, which is attributable to any additional exempt use by the transferee, can be recovered from the transferee, which the decision may call into question.