I. Executive Summary

This briefing summarises key principles of Value Added Tax (VAT) deductibility for holding companies, drawing extensively from the European Court of Justice (ECJ) judgment in Sonaecom SGPS SA v Autoridade Tributária e Aduaneira (Case C-42/19). The case highlights crucial distinctions between a “pure” and “mixed” holding company, clarifies when preparatory acts constitute economic activity, and, most importantly, underscores the precedence of “actual use” over “intended use” for VAT deductibility, particularly when an output transaction results in an exempt supply. The overarching principle of fiscal neutrality underpins all these rulings, aiming to ensure fair and consistent VAT treatment for businesses.

II. Main Themes and Most Important Ideas/Facts

A. The Concept of ‘Taxable Person’ and Holding Companies

Fundamental Distinction: Pure vs. Mixed Holding Companies:

Pure Holding Company: A company whose “sole object is to acquire shares in other companies without direct or indirect involvement in the management of those companies” is not considered a taxable person for VAT purposes. Consequently, it has no right to deduct input VAT. This is because “the mere acquisition and holding of shares in a company do not, in themselves, amount to an economic activity.” Any dividend is merely a result of ownership, not exploitation for continuing income.
Mixed Holding Company: A company that “not only holds shares in companies, but also supplies remunerated, taxable services to some of those companies,” which involve “direct or indirect involvement in the management,” is considered a taxable person. This involvement includes providing “administrative, financial, commercial and technical services.” Sonaecom is explicitly identified as a mixed holding company because, in addition to holding shares, it “provides strategic management and coordination services to companies operating in the telecommunications, media, software and systems integration markets.” A mixed holding company, while a taxable person, may be “entitled to only a pro rata deduction of input tax.”

Preparatory Acts as Economic Activity:

“Economic activities within the meaning of the Sixth Directive may consist of several consecutive transactions, the preparatory acts must themselves be treated as constituting economic activity.”
Any person with an “intention, as confirmed by objective elements, of independently starting an economic activity, and who incurs the initial investment expenditure for those purposes must be regarded as a taxable person.”
This principle ensures fiscal neutrality, preventing businesses from being “burden[ed] with the cost of VAT in the course of his or her economic activity without allowing him to deduct it and would create an arbitrary distinction between investment expenditure incurred for the needs of a business before actual exploitation of the business or expenditure incurred during exploitation.”

B. The Right to Deduct Input VAT

General Rule and Fiscal Neutrality:

The right to deduct is “an integral part of the VAT scheme and, in principle, may not be limited.” It is “exercisable immediately in respect of all the taxes charged on input transactions.”
The “deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his or her economic activities.” This ensures “neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT.”
Fiscal neutrality “precludes, in particular, economic operators who carry out transactions which are, in fact, similar from being treated differently as far as the levying of VAT is concerned, in order to avoid distortions of competition.”

Direct and Immediate Link Principle:

Typically, “the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is, in principle, necessary.” Input expenditure must be “a component of the cost of the output transactions giving rise to the right to deduct.”
Exception (General Costs): A right to deduct exists “even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the services in question are part of his or her general costs and are, as such, components of the price of the goods or services which he or she supplies.” Such costs “do have a direct and immediate link with the taxable person’s economic activity as a whole.”

Intended Use vs. Actual Use (Critical Distinction):

Initial Intention (for Preparatory Acts): The right to deduct, “once it has arisen, is retained even if the intended economic activity was not carried out and, therefore, did not give rise to taxed transactions or the taxable person was unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his or her control.” This prevents “unjustified differences” and maintains fiscal neutrality for initial investments.
Actual Use (for Output Transactions): “The actual use of goods and services takes precedence over the initial intention” for determining VAT deductibility. “A right to deduct input tax existing solely on the basis of a former intention… and which does not… take account of the nature of the transactions actually carried out… would afford him or her a competitive advantage… contrary to the principle of fiscal neutrality.”

Pro Rata Deduction:

When a taxable person uses goods and services “both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions.” This is commonly known as “pro rata deduction.” Member States determine the method for calculating this proportion, often “a fraction based on the annual turnover attributable to deductible transactions compared to the total annual turnover of all transactions.” The calculation method “must objectively reflect the part of the input expenditure actually to be attributed, respectively, to each of the economic and non-economic activities.”

C. Sonaecom Case Specific Rulings

Deductibility of VAT on Consultancy Services (Market Study for Share Acquisition):

Outcome: Sonaecom was entitled to deduct the input VAT.
Reasoning: Sonaecom’s purchase of consultancy services for a market study to acquire shares in Cabovisão was a “preparatory act” for an economic activity. Sonaecom had an objective “intention to provide to Cabovisão… management services subject to VAT.” The costs were considered part of Sonaecom’s “general costs in respect of the economic activity which it carries out in its capacity as a mixed holding company.” Crucially, “the fact that, ultimately, the transaction did not materialise has no effect on the right to deduct VAT, which is retained.”

Deductibility of VAT on Bond Loan Commission:

Outcome: Sonaecom was not entitled to deduct the input VAT.
Reasoning: While initially intended to finance taxable investments (e.g., ‘triple play’ technology or acquiring Cabovisão), the capital from the bond loan was “subsequently chosen to make that amount available to its parent company, Sonae SGPS, in the form of a loan.”
The ECJ ruled that “the actual use made of the services purchased by the applicant in the main proceedings” takes precedence. “Since that loan transaction… is among the transactions exempted under Article 13B(d)(1) of the Sixth Directive [the granting and negotiation of credit], that company cannot be entitled… to deduct from the tax which it is liable to pay the input VAT paid on the commission paid to BCP Investimento.”
The argument that these were general costs was rejected because there was a “direct and immediate link between the upstream services purchased by the applicant in the main proceedings and an exempt output transaction, namely the grant of a loan to its parent company.” To allow deduction would be “contrary to the principle of fiscal neutrality.”

III. Implications and Key Takeaways

Dual Standard for Intention vs. Actual Use: The Sonaecom case establishes a nuanced approach. Initial intention is vital for recognising preparatory acts and allowing early input VAT deduction for new economic activities, even if they don’t materialise due to external circumstances. However, once an actual output transaction occurs, its VAT treatment (taxable vs. exempt) determines input VAT deductibility, overriding prior intentions.
Importance of Documenting Intent: Businesses, especially holding companies, must clearly document their objective intention for acquiring services, particularly for investments or preparatory acts, to substantiate their claim for input VAT deduction.
Scrutiny of Actual Use: Tax authorities will scrutinise the actual use of funds or services. If funds raised through a loan (for which a commission was paid) are ultimately deployed in an exempt activity (like providing an intercompany loan), the input VAT related to the loan arrangement will likely be non-deductible, irrespective of the initial, taxable intent.
Fiscal Neutrality as the Guiding Principle: The ECJ’s decisions consistently refer back to fiscal neutrality. This principle dictates that businesses should not gain an unfair advantage (e.g., by deducting VAT on costs related to exempt activities) nor be unduly burdened (e.g., by being denied deduction for legitimate preparatory acts).
Mixed Holding Company Complexity: Mixed holding companies operating with both taxable (e.g., management services) and non-taxable/exempt (e.g., pure shareholding, intercompany loans) activities must apply pro rata deduction rules carefully, ensuring the calculation method accurately reflects the attribution of input costs.

1. What is the fundamental distinction between a pure holding company and a mixed holding company for VAT purposes?

A pure holding company merely acquires and holds shares in other companies without any direct or indirect involvement in their management. Such a company is not considered a taxable person for VAT and therefore has no right to deduct input VAT. In contrast, a mixed holding company not only holds shares but also carries out economic activities, such as providing remunerated, taxable management services to its subsidiaries. This involvement in management qualifies it as a taxable person, although its right to deduct input VAT may be pro rata.

2. Why are preparatory acts considered an “economic activity” for VAT purposes, even if the intended outcome doesn’t materialise?

Preparatory acts are treated as economic activity if there is an objective intention to independently start an economic activity. This principle is crucial for ensuring fiscal neutrality. It allows businesses to deduct initial investment expenditure incurred with a view to commencing an economic activity, preventing them from being burdened by non-deductible VAT before any taxable income arises, and avoiding arbitrary distinctions between businesses at different stages of their operations.

3. In the Sonaecom case, why was Sonaecom entitled to deduct input VAT on the consultancy services for the market study, despite the share acquisition not going ahead?

Sonaecom was entitled to deduct the input VAT on the consultancy services because these were deemed preparatory acts for a genuinely intended economic activity. Sonaecom had an objective intention to acquire shares in Cabovisão and then provide VAT-taxable management services to that company. The costs for these services were considered part of Sonaecom’s general costs linked to its overall economic activity as a mixed holding company, and the fact that the acquisition ultimately did not materialise was beyond its control and did not negate the right to deduct, in line with the principle of fiscal neutrality.

4. What was the critical distinction the European Court of Justice (ECJ) made regarding the bond loan commission that led to its non-deductibility?

The ECJ ruled that Sonaecom was not entitled to deduct input VAT on the bond loan commission because the crucial factor for deductibility is the actual use of the services, not merely the initial intention. Although the loan was initially intended for taxable investments (e.g., in “triple play” technology or acquiring Cabovisão), the capital was ultimately used to grant a loan to its parent company, Sonae SGPS. The granting of a loan is a transaction explicitly exempt from VAT under EU law, meaning there was a direct and immediate link between the input service (commission) and an exempt output transaction, thus denying the right to deduct.

5. Explain the “direct and immediate link” principle in VAT deductibility.

The “direct and immediate link” principle generally requires that for input VAT to be deductible, the acquired goods or services must have a direct and immediate connection to specific output transactions that give rise to the right to deduct VAT. This means the expenditure incurred for the input services must be a component of the cost of the taxable output transactions. However, an exception exists where costs are part of a taxable person’s general costs and are components of the price of their overall supplies, thereby having a direct and immediate link with the taxable person’s economic activity as a whole.

6. How does the “actual use” principle influence VAT deductibility compared to “intended use,” especially in light of the Sonaecom judgment?

The “actual use” principle takes precedence over “intended use” for VAT deductibility, particularly when an output transaction occurs. While initial intention is vital for recognising preparatory acts as economic activity (as seen with the consultancy services), the ultimate VAT deductibility for services is determined by how they are actually used. If the actual use of the acquired services leads to an exempt transaction, input VAT is generally not deductible, regardless of the initial taxable intention. This prevents unjustified benefits and upholds the principle of fiscal neutrality.

7. What is the principle of fiscal neutrality in VAT, and how did it influence the ECJ’s decisions in the Sonaecom case?

Fiscal neutrality is a fundamental principle of the common VAT system, aiming to relieve traders entirely of the VAT burden incurred in their economic activities, ensuring taxation is neutral regardless of the activity’s purpose or results, provided it is subject to VAT. It precludes economic operators undertaking similar transactions from being treated differently regarding VAT. In Sonaecom, this principle supported the deduction for preparatory acts (consultancy services) to avoid burdening the business with VAT on initial investments. Conversely, it denied deduction for the bond loan commission because its actual use for an exempt transaction would have given Sonaecom an unfair competitive advantage over businesses engaging in similar, but exempt, activities.

8. If a mixed holding company performs both taxable and exempt transactions, how is its input VAT deduction generally handled according to EU VAT law?

When a mixed holding company uses goods or services for both taxable transactions (which give rise to the right to deduct VAT) and exempt transactions (which do not), only a proportion of the input VAT is deductible. This is known as “pro rata deduction,” as outlined in Article 17(5) of the Sixth Directive. Member States are empowered to determine the method for calculating this proportion, which commonly involves a fraction based on the annual turnover attributable to deductible transactions compared to the total annual turnover of all transactions.

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Study Guide: VAT Deductibility for Mixed Holding Companies

I. Case Summary: Sonaecom SGPS SA v Autoridade Tributária e Aduaneira (C-42/19)

This case concerns the interpretation of the Sixth Council Directive 77/388/EEC on Value Added Tax (VAT), specifically Articles 4 (taxable person) and 17 (right to deduct input VAT). The Portuguese company Sonaecom, a mixed holding company involved in managing its subsidiaries, sought to deduct input VAT on two types of expenses:

Consultancy services for a market study to acquire shares: Sonaecom commissioned a market study with a view to acquiring shares in Cabovisão, intending to provide management services to Cabovisão (which are subject to VAT). The acquisition did not materialise.
Commission for a bond loan: Sonaecom paid a commission for organising a bond loan, initially intended to finance investments in ‘triple play’ technology for its subsidiaries or for acquiring Cabovisão. However, the investments did not occur, and the capital from the loan was subsequently transferred as a loan to Sonae SGPS, the parent company.

The core issue before the European Court of Justice (ECJ) was whether Sonaecom was entitled to deduct the input VAT on these services, given that the intended transactions either did not materialise or the funds were used for an exempt transaction.

II. Key Legal Principles from the Sixth VAT Directive

Article 4: Concept of ‘Taxable Person’
Definition: Any person who independently carries out an economic activity, whatever its purpose or results.
Economic Activity: Comprises all activities of producers, traders, and service providers, including the exploitation of tangible or intangible property for obtaining income on a continuing basis.
Holding Companies:Mere acquisition and holding of shares without involvement in management is not an economic activity, and thus, the holder is not a taxable person with a right to deduct.
Involvement in the management of companies, if it entails carrying out VAT-taxable transactions (e.g., administrative, financial, technical services), does qualify as an economic activity.
Mixed Holding Company: A company that combines a non-economic holding activity (mere shareholding) with an economic activity (e.g., providing remunerated, taxable services to subsidiaries). Such a company is a taxable person, but may be entitled to only a pro rata deduction of input tax.
Preparatory Acts: Preparatory acts for an intended economic activity are themselves treated as constituting economic activity, provided there is an objective intention to start an economic activity.
Article 17: Right to Deduct Input VAT
General Rule: A taxable person is entitled to deduct input VAT on goods and services used for the purposes of their taxable transactions.
Timing: The right to deduct arises when the deductible tax becomes chargeable.
Principle of Fiscal Neutrality: This principle is central to the VAT system. It aims to relieve traders entirely of the VAT burden incurred in their economic activities, ensuring neutrality of taxation regardless of purpose or results, provided the activities are subject to VAT.
Effect of Non-Materialisation: The right to deduct, once arisen, is retained even if the intended economic activity was not carried out due to circumstances beyond the taxable person’s control.
Direct and Immediate Link:Generally, a direct and immediate link between an input transaction and a taxable output transaction is required for deduction. The input expenditure must be a component of the cost of the output transactions.
Exception (General Costs): If there is no direct link to a specific output transaction, costs can still be deductible if they are part of the taxable person’s general costs and have a direct and immediate link with the overall economic activity.
Intended Use vs. Actual Use: The ECJ emphasises that the actual use of goods and services takes precedence over the initial intention for purposes of VAT deduction, especially to prevent unjustified benefits and uphold fiscal neutrality.
Pro Rata Deduction (Article 17(5)): For goods and services used for both deductible and non-deductible (exempt) transactions, only a proportion of VAT attributable to the deductible transactions can be recovered. Member States can determine the method for calculating this proportion (e.g., turnover-based, sector-specific, or based on actual use).
Article 13B(d)(1): Exemptions
The granting and negotiation of credit and the management of credit by the person granting it are exempt from VAT.

III. ECJ Rulings in Sonaecom (C-42/19)

First Question (Consultancy Services for Market Study):

Ruling: Sonaecom was entitled to deduct the input VAT.
Reasoning:Sonaecom, as a mixed holding company, had an objective intention to acquire shares and subsequently provide VAT-taxable management services to Cabovisão. This constituted a preparatory act for an economic activity.
The costs for the consultancy services were considered part of Sonaecom’s general costs related to its overall economic activity as a mixed holding company.
The fact that the acquisition did not materialise does not negate the right to deduct, as this would contradict the principle of fiscal neutrality and create unfair distinctions.

Second Question (Commission for Bond Loan):

Ruling: Sonaecom was not entitled to deduct the input VAT.
Reasoning:The ECJ emphasised that the actual use of the services takes precedence over the initial intention.
Although initially intended for investments in taxable activities, the capital from the loan was actually used to provide a loan to the parent company (Sonae SGPS).
The granting of a loan is a transaction explicitly exempt from VAT under Article 13B(d)(1) of the Sixth Directive.
Since the actual output transaction (the loan to the parent company) was exempt, there was a direct and immediate link between the input services (bond loan commission) and an exempt output transaction. Therefore, the input VAT was not deductible.
Treating these costs as general costs deductible in full would contradict fiscal neutrality by allowing deduction for services linked to an exempt activity.

IV. Implications and Conclusion

The Sonaecom judgment clarifies critical aspects of VAT deductibility for mixed holding companies:

Intention vs. Actual Use: While initial intention is crucial for preparatory acts of a new economic activity (First Question), the actual use of acquired services determines deductibility when the output transaction occurs (Second Question). If the actual use leads to an exempt transaction, input VAT is generally not deductible.
General Costs Principle: Costs can be deductible as general costs if they are linked to the taxable person’s overall economic activity, even without a direct link to a specific output transaction. However, this is overridden if the actual use of the services is for an exempt activity.
Fiscal Neutrality: This principle remains paramount. It aims to ensure fair and consistent VAT treatment, preventing competitive distortions and ensuring businesses are not unduly burdened by VAT on their taxable economic activities.

V. Connection to VATupdate.com

VATupdate.com is highlighted as an essential resource for staying current with EU VAT case law, including judgments like Sonaecom. It provides concise summaries and legal analysis, which are crucial for tax advisors, lawyers, academics, and compliance professionals to make informed decisions in the complex field of EU VAT.

Quiz: Sonaecom VAT Deductibility

Answer the following questions in 2-3 sentences each.

What is the primary difference between a pure holding company and a mixed holding company in the context of VAT?
Explain why preparatory acts, even if the intended outcome doesn’t materialise, can still be considered economic activity for VAT purposes.
What was Sonaecom’s intended use of the consultancy services that led to the first question in the ECJ case?
Why did the ECJ rule that Sonaecom was entitled to deduct input VAT on the consultancy services, despite the share acquisition not occurring?
What was the initial intended use of the bond loan for which Sonaecom paid a commission?
How did the actual use of the bond loan differ from its initial intention, and what was the VAT implication of this actual use?
What is the significance of the “direct and immediate link” principle in VAT deductibility?
Under what circumstances can costs be deductible as “general costs” even without a direct link to a specific output transaction?
How does the principle of fiscal neutrality influence VAT deductibility rules, particularly concerning intended versus actual use?
If a mixed holding company provides both taxable management services and also engages in exempt financial transactions, how might their input VAT deduction be calculated according to the Sixth Directive?

Answer Key

A pure holding company merely acquires and holds shares without direct or indirect involvement in management, thus not considered a taxable person for VAT. A mixed holding company, however, also performs economic activities like providing management services to subsidiaries, making it a taxable person, albeit potentially with pro rata deduction rights.
Preparatory acts are considered economic activity if there’s objective evidence of an intention to independently start an economic activity. This ensures fiscal neutrality by allowing businesses to deduct initial investment expenditure, avoiding a burden of non-deductible VAT before taxable income arises.
Sonaecom intended to use the consultancy services for a market study with a view to acquiring shares in Cabovisão. Following the acquisition, it planned to provide Cabovisão with management services that would be subject to VAT.
The ECJ ruled in favour of deduction because the services were part of preparatory acts for a genuinely intended economic activity (providing taxable management services). The non-materialisation of the acquisition was beyond Sonaecom’s control and would contradict the principle of fiscal neutrality if deduction were denied.
The initial intended use of the bond loan, for which Sonaecom paid a commission, was to provide its subsidiaries with resources for direct investments in ‘triple play’ technology or, alternatively, to acquire shares in Cabovisão for investments in that new business segment.
The actual use of the bond loan differed as the planned investments did not materialise. Sonaecom subsequently used the capital to grant a loan to its parent company, Sonae SGPS, which is an activity explicitly exempted from VAT under EU law, thus negating the right to deduct the input VAT.
The “direct and immediate link” principle dictates that input VAT is deductible if the goods or services acquired are directly and immediately linked to output transactions that give rise to the right to deduct. The expenditure must be a component of the cost of those taxable output transactions.
Costs can be deductible as “general costs” if they are components of the price of the goods or services supplied by the taxable person and have a direct and immediate link with the taxable person’s economic activity as a whole, even without a specific output transaction link. This applies unless the actual use of the services is for an exempt activity.
The principle of fiscal neutrality requires that traders are entirely relieved of the VAT burden on their economic activities. It dictates that similar economic operators should be treated similarly regarding VAT, and prevents arbitrary distinctions, ensuring that deduction rights reflect the underlying taxable nature of the business’s overall activities.
If a mixed holding company engages in both taxable and exempt transactions, Article 17(5) of the Sixth Directive dictates that only a proportion of the input VAT is deductible. This proportion is determined based on how much of the goods and services are attributable to the taxable transactions, often calculated using a turnover-based fraction as outlined in Article 19.

Essay Questions (No Answers Provided)

Critically analyse the ECJ’s distinction between “intended use” and “actual use” of services in the context of VAT deductibility, as illustrated by the Sonaecom judgment. Discuss the implications for businesses planning investments and the underlying rationale of fiscal neutrality.
Explain the concept of a “taxable person” under the Sixth VAT Directive, specifically addressing how the ECJ’s interpretation applies to holding companies (pure vs. mixed) and preparatory acts. Use the Sonaecom case to exemplify these principles.
Discuss the principle of fiscal neutrality within the common system of VAT and how it serves as a foundational element for the right to deduct input tax. How did the ECJ apply this principle in its differing rulings on the two questions in the Sonaecom case?
Compare and contrast the deductibility of general costs versus costs directly linked to specific output transactions. Provide examples from the Sonaecom judgment to illustrate when each principle applies and what factors might override the general costs principle.
Imagine you are a tax advisor for a mixed holding company. Based on the Sonaecom judgment, what key advice would you give regarding investment planning and the management of input VAT, particularly concerning projects that might not materialise or could involve exempt financial transactions?

Glossary of Key Terms

Sixth Council Directive 77/388/EEC: The foundational EU directive on the harmonisation of Member States’ laws relating to turnover taxes, establishing the common system of Value Added Tax (VAT). It was later repealed and replaced by Directive 2006/112/EC (the VAT Directive), but its principles largely remain.
VAT Directive 2006/112/EC: The current consolidated version of the EU legislation on the common system of Value Added Tax, which replaced the Sixth Directive without significant material changes to the relevant provisions.
Value Added Tax (VAT): A consumption tax levied on the value added to goods and services at each stage of production and distribution. Businesses collect VAT on their sales (output VAT) and can typically deduct VAT paid on their purchases (input VAT).
Input VAT: The VAT paid by a taxable person on goods or services supplied to them by another taxable person.
Output VAT: The VAT charged by a taxable person on the goods or services they supply.
Taxable Person: Any person (individual or entity) who independently carries out any economic activity, whatever the purpose or results of that activity.
Economic Activity: All activities of producers, traders, and persons supplying services, including the exploitation of tangible or intangible property for the purpose of obtaining income on a continuing basis.
Pure Holding Company: A company whose sole object is to acquire and hold shares in other companies without direct or indirect involvement in their management. Such a company is generally not considered a taxable person for VAT purposes.
Mixed Holding Company: A company that not only holds shares in other companies (a non-economic activity) but also performs economic activities, such as providing remunerated, taxable administrative, financial, or technical services to its subsidiaries. Such a company is a taxable person, but may have limitations on VAT deduction.
Right to Deduct: The entitlement of a taxable person to subtract the input VAT they have paid from the output VAT they are liable to pay, ensuring that VAT is neutral for the business.
Fiscal Neutrality: A fundamental principle of the common VAT system, meaning that the VAT burden should not distort competition among economic operators and should not ultimately burden the business itself, but rather the final consumer.
Direct and Immediate Link: The connection required between an input transaction (purchase of goods/services) and an output transaction (supply of goods/services) for input VAT to be deductible. The input expenditure must be a cost component of the output transaction.
General Costs: Costs incurred by a taxable person that are not directly linked to a specific output transaction but are components of the price of the goods or services supplied overall, having a direct and immediate link with the taxable person’s economic activity as a whole.
Exempt Transactions: Certain transactions, specified by the VAT Directive (e.g., financial services, insurance), on which no VAT is charged, and for which the taxable person generally cannot deduct input VAT incurred to make those supplies.
Pro Rata Deduction: The method for calculating the deductible proportion of input VAT when a taxable person uses goods or services for both taxable (deductible) and exempt (non-deductible) transactions. This is often determined by a fraction based on turnover.
Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal): The national court in Portugal that referred the preliminary ruling questions to the European Court of Justice in the Sonaecom case.
European Court of Justice (ECJ) / Court of Justice of the European Union (CJEU): The highest court in the European Union in matters of EU law. It ensures the uniform application and interpretation of EU law across the Member States.
Preliminary Ruling: A procedure where a national court asks the ECJ for an interpretation of EU law or a ruling on its validity, which helps ensure uniform application of EU law.
SGPS (Sociedades Gestoras de Participações Sociais): Portuguese legal entities specifically defined for the purpose of managing shareholdings in other companies.

Deduction (input tax credit) ECJ (European Court of Justice) / General Court

Briefing Doc & Podcast ECJ VAT C-42/19 (Sonaecom) : VAT Deductibility for Mixed Holding Companies

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