On September 8, 2022, the ECJ issued its decision in the case C-98/21 (Finanzamt R).
Context: Value added tax – Directive 2006/112 – Right of a managing holding that supplies taxable output services to subsidiaries, to deduction even for services that it obtains from third parties and contributes to the subsidiaries in return for the granting of a share in the general profit, even though the obtained input services are directly and immediately linked to the (largely) tax-exempt activities of the subsidiaries and not to the holding’s own transactions – exclusion of deduction on the grounds of abuse of rights or conflict with the system.
Articles in the EU VAT Directive
Articles 167 and 168(1) of the EU VAT Directive 2006/112/EC.
Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168(a) (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
- The applicant is a company active in construction projects and the sale / management / exploitation thereof.
- The applicant provided services for consideration at a later stage, in the form of accounting and management services for its subsidiaries X-KG and Y-KG.
- The applicant is therefore in principle entitled to the full deduction of input tax from the services it purchased at an earlier stage.
- However, the defendant (the German tax authorities) assessed the applicant’s contribution for no consideration in favor of X-KG and Y-KG as activities that did not serve to obtain revenue from it under VAT law and which therefore cannot be classified under the applicant’s business activity.
The question arises whether the applicant purchased the services purchased at an earlier stage, which it passes on to X-KG and Y-KG as a contribution from the partner, for its company and whether the associated costs are part of its “overheads”. If the Court were to hold that the services in question would at an earlier stage give rise to the right to deduct input tax, the referring court wonders whether the intermediation of a parent company in the chain of services to the subsidiary in order to obtain deduction of input tax is it is not entitled to, constitutes an abuse of law.
(1) In circumstances such as those at issue in the main proceedings, are Article 168 (a) in conjunction with Article 167 of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax to be interpreted as meaning that a board holding company, which at a later stage carries out transactions taxed for subsidiaries, is also entitled to deduct input tax on services it purchases from third parties and in return for a share in the general profit it contributes to the subsidiaries, although the previously decreased services are not directly and directly related to the holding company’s own operations, but to the (highly) exempt activities of the subsidiaries,and the services purchased at an earlier stage are not included in the price of the taxed transactions (performed for the subsidiaries) and are not part of the general costs of the holding’s own business operations?
(2) If Question 1 is answered in the affirmative, does it constitute an abuse within the meaning of the case-law of the Court of Justice of the European Union (‘the Court’) when an administrative holding as an ‘intermediary’ in the chain of services to subsidiaries is recognized in such a way that it purchases the services for which the subsidiaries would not be entitled to deduct input tax in the event of a direct supply of services, transfers them to the subsidiaries against a share in their profits and then relies on its position as a board holding claim deducts in full the input tax on the services at an earlier stage, or can this interconnection be justified on non-tax grounds,although the full deduction of input tax is in itself contrary to the system and would lead to a competitive advantage of holding arrangements over single companies?
(1) Article 168(a), in conjunction with Article 167 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as meaning that a management holding company, which carries out taxable transactions for subsidiaries at a later stage, is not entitled to deduct input tax on services which it purchases from third parties and which it contributes to the subsidiaries in exchange for a participation in the general profits, if the earlier services are not directly and directly related to the holding company’s own actions, but with the (highly) exempt activities of the subsidiaries,and the services purchased at an earlier stage are not included in the price of the taxable transactions (performed for the subsidiaries) and are not part of the general costs of the holding company’s own business.
2) The fact that an administrative holding company is included as an “intermediate” in the chain of services to subsidiaries in such a way that it itself purchases the services for which the subsidiaries would not be entitled to deduct input tax in the event of a direct purchase, transfers them into the subsidiaries claims against a participation in their profits and subsequently claims full deduction of input tax on the services at an earlier stage by relying on its position as a management holding company, constitutes a tax advantage the grant of which is contrary to the purpose of the deduction scheme for the VAT Directive. Such an act constitutes an abuse of rights, even if it can be justified on non-tax grounds,
Article 168 letter a of Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax in conjunction with Article 167 thereof
is to be interpreted as follows
a holding company which carries out taxable output transactions to subsidiaries does not have the right to deduct input tax for services which it purchases from third parties and contributes to the subsidiaries in return for a share in the general profit, if, first, the purchased inputs are not directly and immediately related with the holding company’s own turnover, but with the largely tax-free activities of the subsidiaries, secondly, these input services are not included in the price of the taxable transactions made to the subsidiaries and, thirdly, these services are not part of the general cost elements of the holding company’s own economic activity.
References to other ECJ Cases
- C-496/11; Ryanair
- 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-132/16 (Iberdrola Inmobiliaria Real Estate Investments) – Conditions for the Right to deduct VAT (!!!) – Renovation free of charge for the benefit of a third party
- C-251/16 (Cussens and Others) – VAT abuse of rights principle does not require a national measure transposing it
- C-249/17 (Ryanair Ltd) – Input VAT recovery on costs relating to acquisition of shares
- 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 sharesC-249/17; Iberdrola Inmobiliaria Real Estate Investments
- C-316/18 (Cambridge) – VAT treatment of fund management activities
- C-405/19 (Vos Aannemingen Bvba) – VAT exemption immovable property; Input VAT deduction
- C-116/16 and C-117;
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