The ECJ has decided in few cases on the deductibility of VAT of Holding companies related to costs made with regard to their subsidiaries.
According to the consistent case-law of the Court of Justice and of the referring court, a holding company is entitled to deduction where its financial holding in another company is accompanied by direct or indirect involvement in the management of the company in which the holding has been acquired, in so far as involvement of that kind entails carrying out transactions which are subject to VAT by virtue of Article 2 of Directive 2006/112.
First, it is settled case-law that expenditure incurred by a holding company involved in the management of a subsidiary in respect of the various services it has purchased in connection with the acquisition of a shareholding in that subsidiary forms part of the taxable person’s general costs and is, as such, a cost component of its products, and therefore has, in principle, a direct and immediate link with the holding company’s economic activity as a whole. The right to deduction must be guaranteed, without it being subjected to a criterion such as place, purpose or result of the taxable person’s economic activity (judgment in C-320/17 (Marle Participations), EU:C:2018:537, paragraph 43 and 44). To this extent, the scope of the economic activity or its result is, in principle, irrelevant.
Article in EU VAT Directive
Article 9(1) of the EU VAT Directive 2006/112/EC (Taxable person)
Article 173 of the EU VAT Directive 2006/112/EC (Right to deduct VAT)
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.
1. In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.
The deductible proportion shall be determined, in accordance with Articles 174 and 175, for all the transactions carried out by the taxable person.
2. Member States may take the following measures:
(a) authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;
(b) require the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;
(c) authorise or require the taxable person to make the deduction on the basis of the use made of all or part of the goods and services;
(d) authorise or require the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph of paragraph 1, in respect of all goods and services used for all transactions referred to therein;
(e) provide that, where the VAT which is not deductible by the taxable person is insignificant, it is to be treated as nil.
ECJ Cases – Decided
- C-60/90 (Polysar Investments Netherlands) – A holding company only acquiring shares in other undertakings is not a taxable person and has no right to deduct VAT
- C-155/94 (Wellcome Trust Ltd) – Purchase and sale of shares and other securities by a trustee in the course of the management of the assets of a charitable trust is not an economic activity
- C-108/14 and C-109/14 (Larentia + Minerva) – VAT paid by holding companies for the acquisition of capital invested in their subsidiaries
- C-28/16 (MVM) – Also VAT deduction limitation for ”active” company that holds participations
- C-320/17 (Marle Participations) – Involvement of a holding in management of subsidiaries; Letting of building by holding company to subsidiary
- C-502/17 (C&D Foods Acquisition) – Deduction input VAT for Holdings; Sales of shares
- C-98/21 (Finanzamt R) – No Input VAT recovery by holding for free services to subsidiaries that perform mostly VAT exempt activities
Pending ECJ Cases
Join the Linkedin Group on ECJ VAT Cases, click HERE