Rotex Europe Ltd (T‑84/26): CJEU Confirms Late VAT Registration does not Extinguish Deduction Rights

VAT is intended to be a tax on consumption, not a cost for businesses. The principle of VAT neutrality means that, where a business makes taxable supplies, input VAT should generally be recoverable so that the ultimate burden of the tax falls on the final consumer. But what happens when a business registers for VAT late? Can a procedural failure result in genuine input VAT becoming an irrecoverable cost? The recent case of Rotex Europe Ltd (T-84/26) highlights the tension between VAT registration requirements and the fundamental right to deduct input VAT and provides an important reminder that compliance rules should not undermine the neutrality of the VAT system.

In this case, the Court of Justice of the European Union (“CJEU”) considered whether a Member State may deny a taxpayer the right to deduct input VAT on goods acquired before VAT registration solely because those goods were no longer physically present when registration took effect.

Background of the case

 Rotex Europe Ltd, a company established in the United Kingdom, purchased agricultural and food-processing machinery from suppliers in Bulgaria and subsequently sold the goods to customers in other EU Member States.

Although the company was required to register for VAT in Bulgaria, it did not do so on time and only did so in August 2023. Following registration, Rotex declared both its pre-registration purchases and sales and claimed a deduction for the input VAT incurred on those purchases, reclaiming an input VAT refund of BGN 1,749,284.60 (approx. EUR 894,394).

The Bulgarian tax authorities refused the deduction on the basis of national rules, requiring goods acquired before registration to remain physically present as a company asset, at the date of VAT registration. Because the machinery had already been sold, this condition could not be satisfied.

What did the CJEU consider in order to reach a decision?

 The key question was whether EU VAT law permits a Member State to make the deduction of pre-registration input VAT conditional, based on the continued physical presence of the goods, at the date of VAT registration.

The Court reaffirmed that the right to deduct VAT is a fundamental element of the common VAT system and should not be restricted where the substantive conditions for deduction have been met.

According to the Court, a taxable person may be entitled to deduct VAT incurred before formal VAT registration, provided that the substantive conditions for deduction are satisfied. The key consideration is whether the goods or services were acquired for the purposes of carrying on taxable economic activities. While Member States are entitled to impose administrative requirements designed to ensure the correct collection of VAT and prevent fraud, such requirements must be proportionate to those objectives. The Court emphasised that procedural or administrative conditions cannot be applied in a manner that undermines the fundamental principle of VAT neutrality, which seeks to ensure that businesses are not burdened with irrecoverable VAT when acting as taxable persons in the course of their economic activities.

Decision made by the CJEU

 The Court held that EU law prevents Member States from automatically denying a deduction for VAT incurred on goods acquired before registration solely because those goods are no longer physically present on the registration date.

A taxpayer who can demonstrate that the goods were acquired and used for taxable business activities must not be deprived of the right to deduct VAT merely because a formal condition cannot be satisfied.

The requirement for the physical presence of goods, at the date of VAT registration, went beyond what was necessary to verify a taxpayer’s entitlement to deduction. The absence of the goods did not, by itself, demonstrate fraud, abuse, or non-business activity.

The Court concluded that such a requirement is incompatible with EU VAT law and the principles of fiscal neutrality and proportionality.

Practical impact of the CJEU judgement

The CJEU’s decision confirms that the right to deduct VAT depends primarily on the substantive economic reality of a transaction rather than strict compliance with formal requirements. As a result, defects in VAT registration, including late registration, do not automatically deprive a taxable person of the right to recover input VAT. The Court further emphasised that, although Member States may introduce administrative requirements, to ensure the correct collection of tax and to prevent fraud, such measures must be proportionate and applied in a manner consistent with the principle of fiscal neutrality. Consequently, businesses should not be left bearing irrecoverable VAT costs where they can demonstrate that the purchases in question were made and used for the purposes of taxable economic activities.

Conclusion

 The Rotex Europe Ltd ruling reinforces a recurring theme in EU VAT case law, that the entitlement to deduct VAT depends on the economic substance of transactions, rather than rigid formal requirements. Where a taxpayer can demonstrate that goods were acquired for taxable business purposes, the right to deduct input VAT cannot be denied merely because those goods are no longer held when VAT registration occurs, meaning that purely procedural defects should not result in loss of deduction rights for a business.