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Flashback on ECJ Cases 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

On June 20, 1991, the ECJ issued its decision in the case C-60/90 ( Polysar Investments Netherlands)

Context: Interpretation of Articles 4 and 13B (d) (5) of the Sixth Directive – Taxable person – Activities of a holding company.


Article in the EU VAT Directive

Articles 4(1), 4(2), 4(4), 17(3)(c) of the Sixth VAT Directive (Articles 9(1), 169, 170 of the EU VAT Directive 2006/112/EC).

Article 9 (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.

Article 169 (Right to deduct VAT)
In addition to the deduction referred to in Article 168, the taxable person shall be entitled to deduct the VAT referred to therein in so far as the goods and services are used for the purposes of the following:
(a) transactions relating to the activities referred to in the second subparagraph of Article 9(1), carried out outside the Member State in which that tax is due or paid,in respect of which VAT would be deductible if they had been carried out within that Member State;
(b) transactions which are exempt pursuant to Articles 138, 142 or 144, Articles 146 to 149, Articles 151, 152, 153 or 156, Article 157(1)(b), Articles 158 to 161 or Article 164;
(c) transactions which are exempt pursuant to points (a) to (f) of Article 135(1), where the customer is established outside the Community or where those transactions relate directly to goods to be exported out of the Community.

Article 170 (Right to deduct VAT)
All taxable persons who, within the meaning of Article 1 of Directive 86/560/EEC, Article 2(1) and Article 3 of Directive 2008/9/EC and Article 171 of this Directive, are not established in the Member State in which they purchase goods and services or import goods subject to VAT shall be entitled to obtain a refund of that VAT insofar as the goods and services are used for the purposes of the following:
(a) transactions referred to in Article 169;
(b) transactions for which the tax is solely payable by the customer in accordance with Articles 194 to 197 or Article 199.


Facts

  • Polysar BV forms part of the world-wide Polysar group. It holds shares in various foreign companies, receives dividends each year and regularly pays out dividends to Polysar Holding Ltd, a company incorporated in Canada which holds 100% of Polysar BV’s capital.
  • Polysar BV does not engage in trading activities. From 1 January 1981 to 31 December 1985 Polysar BV paid in respect of various services rendered to it a certain amount by way of value added tax which was subsequently refunded to it.
  • The Inspector of Customs and Excise, Arnhem, considered that under the Sixth Directive Polysar BV was not entitled to deduct the value added tax paid and issued an assessment for the recovery of the amount refunded.

Questions

1 . (a) Must a holding company whose activities are concerned solely with the holding of shares in subsidiary companies be regarded as a taxable person within the meaning of Articles 4 and 17 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes? (b) If not, is the holding company none the less a taxable person if it forms a link in and an integral part of a world-wide group of undertakings which in the main outwardly appears under a single name, the group name? 2. (a) If a holding company must be considered a taxable person, are the activities in which it engages as such transactions within the meaning of Article 13B(d)(5) of the directive, so that they must be considered to be services exempt from turnover tax and the turnover tax charged by third parties in this regard is not deductible? (b) If the questions raised in 2(a) are answered in the affirmative, must the answer be different if the group of undertakings to which the holding company belongs provides, in accordance with Community criteria, exclusively  services which are taxable within the meaning of the Sixth Directive?


AG Opinion

Question 1(a) A holding company whose activities are concerned solely with the holding of shares in subsidiary companies and with the exercise of the rights which are connected therewith, or which do not go beyond the company’s internal  structure, cannot be regarded as a taxable person within the meaning of the Sixth Directive. Question 2(a) If, however, a holding company is to be regarded as a taxable person on account of activities other than those referred to in the answer to Question 1(a), the activities referred to in the answer to Question 1(a) are still not taxable within the meaning of Article 17(2) of the Sixth Directive and do not fall within the exemptions provided for in Article 13B(d). Nor do such activities lçonfer a special right to a deduction pursuant to Article 17(3) of the Sixth Directive. Questions 1(b) and 2(b) For the purposes of the answer to Questions 1(a) and 2(a), the fact that the holding company forms an integral part of a world-wide group which in the main outwardly appears under a single name, the group name, and in which  other companies are to be regarded as taxable persons providing taxable services is immaterial.


Decision 

Article 4 of the Sixth Council Directive (77/388/EEC) of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, must be interpreted as meaning that a holding company whose sole purpose is to acquire holdings in other undertakings, without involving itself directly or indirectly in the management of those undertakings, without prejudice to its rights as shareholder, does not have the status of a taxable person for the purposes of value added tax and therefore has no right to deduct tax under Article 17 of the Sixth Directive. The fact that the holding company belongs to a world-wide group of undertakings, which appears outwardly under a single name, is not relevant to the company’s classification as a taxable person for the purposes of value added tax.


Summary


Source


Similar ECJ cases


Reference to the case in te EU Member States


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