Article 59 - Proportional deduction

A. Input Tax incurred by a Taxable Person can be deducted in full where it is attributed exclusively and directly to Supplies that grant the right of deduction in accordance with the provisions of the Law and these Regulations.

B. Input Tax incurred by a Taxable Person can not be deducted where it is attributed exclusively and directly to Supplies that do not grant the right of deduction in accordance with the provisions of the Law and these Regulations.

C. Where the Input Tax is related to Goods and Services used to make Taxable Supplies and non-Taxable Supplies, and the Taxpayer can not attribute the Input Tax exclusively and directly to any of these Supplies, he shall, for the purposes of exercising the right to deduct, use a proportional deduction ratio.

D. For the purposes of applying this Article, the proportional deduction ratio shall be determined as the ratio between the total value of Supplies that confer the right to deduct (the numerator), and the total value of all Supplies carried out by the Taxable Person, including those which do not confer that right (the denominator).

E. In order to compute the proportional deduction ratio, the value of the following transactions shall not be included:

1. Supplies of Capital Assets allocated for the exercise of the Economic Activity.
2. Supplies which are incidental and do not constitute the core activity of the Taxable Person.
3. Supplies taking place outside the Kingdom which are supplied from an establishment of the Taxable Person outside the Kingdom.
4. Transactions out of the scope of Tax.

F. The Taxable Person shall determine at the end of each Tax Period the proportional deduction ratio calculated on the basis of the actual value of the Supplies made during this Tax Period.

G. At the end of the Tax year, the Taxable Person shall compute the proportional deduction ratio based on the actual value of Supplies made in that Tax year. Where the amount of deductible Input Tax for the Tax year resulting from this annual computation differs from the total amount of Input Tax actually deducted throughout the Tax year, the Taxable Person shall make an adjustment for this difference.

This adjustment shall be made in the final Tax Period for that Tax year or in the first Tax Period of the following Tax year.

H. For the purposes of the adjustment of Input Tax on Capital Assets, a Tax year shall mean a period of twelve consecutive months made of either four Tax Periods (quarterly) or twelve (monthly) Tax Periods, as determined by the Bureau.

I. The proportional deduction ratio, expressed as a percentage, shall be rounded up to the nearest decimal number.

J. The Taxable Person, following the Bureau's approval, shall be entitled to use other methods to calculate the proportional deduction ratio reflecting his Economic Activity.

K. The Bureau may oblige the Taxable Person to use another method to calculate the proportional deduction ratio when the computation method stipulated in this Article does not provide a fair and reasonable reflection of his Economic Activity.