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Luxembourg VAT authorities just issued a new circular in relation with the interpretation of one key feature of the VAT legislation: how to determine the deductible proportion of the VAT that has been incurred by a business that performs different types of transactions, some that do allow to deduct the input VAT, some that do not. This circular introduces a fundamental change in the methodology, from a pure turnover based approach currently applied by most of the taxpayers, to an analytical accounting based approach. This potentially has far reaching consequences that this rather short circular fails to fully explain.
Current approach
In Luxembourg, the methods applicable for the determination of deductible VAT incurred in relation to...
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