The European Union Council has proposed changes to the framework legislation for reclaiming VAT on costs incurred that member states will be required to implement in their national legislation to be effective from 1 January 2011. This will in effect replace the Lennartz system, whereby any private use of an asset could be ignored for the initial recovery of VAT as long as it had some taxable business use (which was compensated for by periodic deemed output tax charges for the private use), with an adjustment mechanism based on the principles of the capital goods adjustment scheme.
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