Morgan Stanley & Co Int plc v Ministre de

European Union – Value added tax. Articles 17(2), (3) and (5) and 19(1) of Sixth Council Directive (EC) 77/388 and arts 168, 169 and 173 to 175 of Council Directive (EC) 2006/112 should be interpreted as meaning that, in relation to the expenditure borne by a branch registered in a member state, which was used, exclusively, both for transactions subject to VAT and for transactions exempt from that tax, carried out by the principal establishment of that branch established in another member state, it was necessary to apply a deductible proportion resulting from a fraction the denominator of which was formed by the turnover, exclusive of VAT, made up of those transactions alone and the numerator of which was formed by the taxed transactions in respect of which VAT which would also be deductible if they had been carried out in the member state in which that branch was registered, including where that right to deduct stemmed from the exercise of an option, effected by that branch, consisting in making the transactions carried out in that state subject to VAT. The Court of Justice of the European Union so held in proceedings brought by Morgan Stanley & Co International plc concerning the deduction of VAT paid by its Paris branch.

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