A holding company’s right to reclaim VAT has been under increased scrutiny from EU tax authorities for several years. Taxand UK looks at how CJEU decisions have determined the circumstances in which holding companies may reclaim VAT.
Back to basics
The CJEU’s approach to pure holding companies is that they have no economic activity and therefore no right to reclaim VAT. VAT recovery depends on a business making taxable supplies; that is to say selling goods or services that are subject to either a positive or zero rate of VAT.
Disposing of shareholdings
In a 2010 decision the CJEU decided that disposing of the shares in subsidiaries facilitated a group restructuring which was part of the overall economic activity of the group since selling the shares meant income would be received on a continuing basis; i.e. this was an economic activity beyond a simple sale of shares. The holding company would have a right to reclaim VAT if selling the shares was “the direct, permanent and necessary extension of the economic activity of AB SKF and there was a direct and immediate link between the costs associated with the input services and the overall economic activities of the taxable person.
VAT grouping presents a complementary option whereby the holding company joins with one or more of the trading companies in its group to form a single entity for VAT purposes.Several EU jurisdictions successfully challenged the EC’s attempt to prevent member states allowing a company to join a VAT group if that company would not be entitled to VAT register in its own right.