On 5th of July 2018, the ECJ released its judgment in the case of Marle Participations SARL (C-320/17), which dealt with input VAT deductibility by a holding company on expenses relating to the acquisition of shares, where the holding company is also involved in the management of that subsidiary.
Article in the EU VAT Directive
Article 9(1) of the EU VAT Directive 2006/112/EC (Taxable person)
1. “Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.
- Marle Participations is the holding company of the Marle group, which is in the business of manufacturing orthopaedic implants. Part of Marle Participation’s activities consist of the management of shareholdings in several subsidiaries of the Marle group, to which it also let a building.
- Marle Participations conducted a restructuring operation which led it to make sales and acquisitions of securities. It deducted in full the VAT charged on various expenses connected with that restructuring operation.
- The tax authorities denied this input VAT deduction, arguing that the expenditure in respect of which the company claimed deduction of VAT contributed to the implementation of capital transactions which fell outside the scope of the right of deduction.
- Marle Participations argued that, although the mere acquisition and holding of shares in a company is not to be regarded as an economic activity, the position will be otherwise where the holding is accompanied by direct or indirect involvement in the management of the companies in which the interests are held, through the carrying out of transactions subject to VAT, such as the supply to those companies of financial, commercial and technical services.
The Court of Justice is asked to rule on the question as to whether — and, if so, under what conditions — the letting of buildings by a holding company to a subsidiary constitutes a direct or indirect involvement in the management of that subsidiary the effect of which being that the acquisition and holding of shares in that subsidiary are considered economic activities within the meaning of the Directive of 28 November 2006 1 on the common system of value added tax.
Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the letting of a building by a holding company to its subsidiary amounts to ‘involvement in the management’ of that subsidiary, which must be considered to be an economic activity, within the meaning of Article 9(1) of that directive, giving rise to the right to deduct the value added tax (VAT) on the expenditure incurred by the company for the purpose of acquiring shares in that subsidiary, where that supply of services is made on a continuing basis, is carried out for consideration and is taxed, meaning that the letting is not exempt, and there is a direct link between the service rendered by the supplier and the consideration received from the beneficiary. Expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in the subsidiaries’ management by letting them a building and which, on that basis, carries out an economic activity has to be regarded as belonging to its general expenditure and the VAT paid on that expenditure must, in principle, be capable of being deducted in full.
Expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in the management of only some of those subsidiaries and which, with regard to the others, does not, by contrast, carry out an economic activity must be regarded as only partially belonging to its general expenditure, so that the VAT paid on that expenditure may be deducted only in proportion to the expenditure which is inherent in the economic activity, in accordance with the apportionment criteria defined by the Member States, which, when exercising that power, must have regard to the aims and broad logic of that directive and, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to economic and to non-economic activity, which it is for the national courts to ascertain.
The ECJ considers that ‘Economic activities’ include the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. However, the mere acquisition and holding of shares in a company is not to be regarded as an economic activity, unless where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired.
The term ‘involvement of a holding company in the management of its subsidiary’ must be understood as covering all transactions constituting an economic activity, within the meaning of the VAT Directive, performed by the holding company for the benefit of its subsidiary.
In the present case, the only services that Marle Participations supplied to the subsidiaries in whose regard it incurred expenditure for the purpose of acquiring their securities, or that it sought to develop in respect of those subsidiaries, related to the letting of a building used by an operational subsidiary as a new production site.
Similar ECJ cases
- ECJ cases C-108/14 and C-109/14 (Larentia + Minerva) – VAT paid by holding companies for the acquisition of capital invested in their subsidiaries
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