Scope of Application for Individual Interpretation
On June 20, 2023, an application for individual interpretation was received regarding the right to reduce tax by the amount of input tax. The application is related to expenses incurred for the implementation of a project by a foundation. The foundation is engaged in financing pro-social activities and is an active VAT payer. Their activities include initiating joint ventures, research and development, promoting cooperation based on information and communication technologies, supporting innovative solutions, and developing attitudes focused on active cooperation in civil society. The foundation is currently implementing a project to support community-led local development. The project involves the production of professional video materials to promote the area. The operation is non-commercial and aims to attract investors. The foundation is seeking clarification on whether they are entitled to deduct input tax for goods and services purchased for the project.
According to Article 86(1) of the Act on tax on goods and services, the foundation will not be entitled to deduct input tax on the purchase of goods and services for the project. This is because the services provided under the project are free of charge and not used for taxable sales. The foundation does not expect any future income from the project. The basic principle for the right to deduct input tax is the existence of a link between the tax and taxable activities. Since the foundation will not engage in taxable activities, they cannot deduct input tax from the tax due for goods and services purchased for the project.
Job Evaluation and Justification of Individual Interpretation
The position presented by the foundation in their application is correct. According to Article 86(1) of the Act on tax on goods and services, a taxpayer has the right to reduce the amount of tax due by the amount of input tax if the goods and services are used to perform taxable activities. However, the foundation, as a non-profit organization providing free services for the promotion of the investment area, does not engage in taxable activities. Therefore, they are not eligible to deduct input tax for goods and services purchased for the project.
The conditions for exercising the right to deduct input tax are clearly defined in the Act. The taxpayer must be a registered, active VAT payer and the goods and services for which the tax is accrued must be used for taxable activities. In this case, the foundation does not meet these conditions and therefore cannot deduct input tax.