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The neverending story of holding companies

The VAT position of companies that only (or substantially) hold shares has been an open issue for ages. If holding shares is an economic activity, then these companies would be considered taxable persons, And the VAT that they incur on acquisitions and dispositions (like legal fees) would be recoverable. If not, then VAT on the company’s expenses would be a cost.

The question is not so much whether passive shareholding (doing nothing but holding shares and receiving dividends) is a business activity for VAT – because the answer is no. The EU Court of Justice (ECJ) has been very clear on that in their landmark “Polysar” ruling (C-60-90, see

The Big Question is rather if holding shares with a goal to manage the subsidiaries (and receive management fees) is an economic activity that creates the right to recover VAT.

When I went to law school in the late eighties the Dutch authorities had a very forward-thinking policy on holding companies that was later codified in a public ruling (for you Dutchies: de holding-resolutie van 18 februari 1991, VB 91/347). They said that if the holding company performs some degree of management for the group, then the holding company is not a taxable person for VAT (the 6th VAT Directive did not allow this). However, they allow this company to be part of a Dutch fiscal unity. And thus the VAT on the holding’s business expenses is recoverable (to the extent that the unity has the right to recover).

That approach made total sense. By the way, Switzerland (not an EU member state) has similar rules.

In the meantime, other member states have been wrestling with this matter as well. Even if holding companies had a management role, it was not always considered an “economic activity” – because the supplies were aimed only at the group companies, and “not a commercial activity”. Countries then denied the reclaim of VAT on acquisition expenses on the basis that acquisition are “directly connected” to shareholding (not an economic activity) and not “directly connected” to management services.

Even though the ECJ has issued half a dozen ruling on the matter (think Cibo Participations, C-16/00), the VAT treatment of holding companies varies throughout the European Union.

There is currently a case at the ECJ – “Beteiligungsgesellschaft Larentia + Minerva mbH & Co. KG” (C-108/14 and C-109/14), where the Advocate-General simply states that if the holding company acquires shares and provides management services for the group, then the VAT on the expenses is recoverable as being directly connected to management services.

Obviously, this is “just” an opinion and the ECJ is not required to mirror this in its judgement.

Have a look at the opinion below, which is nicely annotated and provides a good historical and legal perspective.

Download (PDF, 1.67MB)

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The VAT job market in the U.S.

I haven’t spend much time on this blog in relation to the VAT job market here in the U.S. Until recently there wasn’t really one. The main VAT experts were secondees at Big 4 firms – good people that came and went. A dozen VAT talented holdouts, mostly in senior roles, remained at the Big 4, but very few transitioned to industry.

However, I share TaxTalent’s analysis (re-printed below) that lately there has been more industry demand for U.S. based VAT staff. More multinational companies are bringing VAT resources in-house. I found however that these folks are mostly sales tax specialists with an interest in VAT – not seasoned VAT/GST experts that are brought in from VAT jurisdictions.

I find that odd, because I would expect U.S. headquarters to be very interested in minimizing global tax risks. And with VAT being a very significant element of global sales, a successful indirect tax strategy directly improves shareholder value. You will say “but other than streamlining income tax, there is no financial benefit from global VAT management!”. Agreed. It is very difficult to put a pricetag to minimizing audit risk and mitigating legal, accounting, compliance and supply chain risks. But when your vendors, customers and internal business teams start complaining, the tax department will have no specialist resources to fight the indirect tax fires.

Interestingly, indirect tax salaries here are often significantly lower than what Europe-based multinationals offer – and always (indeed without exception) lower than what U.S.-based Big 4 firms offer.

Have a look at TaxTalent’s review – not just for indirect taxes, but for income tax as well.

“For US based companies, we strongly believe that tax and financial leadership will be taking a hard look at their staffing resources overseas and adding staff that brings indirect tax expertise to the table. We also project that the larger companies will consider creating a global indirect tax role that we could see being based at the US headquarters as opposed to being kept offshore.

The demand for additional indirect tax professionals overseas is being driven by two forces:

1. Risk Mitigation – the growing exposure that is building as foreign entities become more aggressive in the transfer pricing area.
2. Lost Tax Planning Opportunities – we believe there is a growing sense that a significant amount of money is being left on the table.”

The report is here:

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Brazil – tax on exported services

Brazil leads the “BRIC” countries in indirect tax complexity – and for a good reason. One of the indirect taxes levied is ISS – municipal service tax – and Brazilian service providers struggle in particular with the situation where the service is performed in Brazil but “enjoyed” overseas, by a non-resident party.

The correspondents in Brazil of the International Tax Review make the case for exempting these services that are enjoyed overseas – a good read and summary of how ISS works:

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EU VAT and e-businesses – country overview

The VAT liability of online sales of services (i.e. downloads of music, video, games etc. etc.) has been in the spotlight lately – to a point where the UK Prime Minister is pushing for even further simplifications (see my earlier post here).

U.S.-based e-sellers have been facing similar challenges for a couple of years already, and it is good to see developments to streamline VAT compliance.

In the meantime, the European Commission has issued an overview of how individual EU countries deal with VAT on B2C online sales. The overview is in Excel format:
(had to abbreviate the web address because it did not fit in this column)

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EU invoicing rules database

The EU Commission has updated their invoicing rules database: please bookmark this page as you will want to return to this regularly:

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UK supports EU VAT registration threshold for e-businesses

Yahoo UK reported:

“The Prime Minister [Cameron] is planning to raise new VAT regulations for automated digital services at the EU summit beginning today in Brussels amid fears some small traders could be forced out of business altogether.”


“In particular, he wants the commission to introduce a turnover threshold, as well as exempting small firms from a requirement to retain details of purchasers showing where they bought the product for ten years.”


or see the Financial Times here with a paywall:


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Robert Tsang on Malaysia GST

Robert Tsang, Deloitte’s AsiaPac VAT Leader, discusses the upcoming Malaysia GST introduction on YouTube.

I worked directly for Robert during my 4 years at Deloitte in New York, and I vouch for his technical prowess – watching this video is the best background info on Malaysian GST that is currently available.

Although I recommend that you set aside half an hour to view the entire discussion, you may want to jump to certain topics of interest.

Time Topic
0:31 Are businesses ready for the Malaysian GST?
1:53 Customs as the administrating body
3:36 Issues to be resolved by 1 April 2015
5:21 Elements in the proposed Malaysian GST
7:07 Functional currency
9:06 Business transfers and refunds
13:44 Leniency in regard to penalties
15:43 Free Trade Zones in Malaysia
18:52 Prevention of profiteering
24:52 Expectations after the introduction of GST
28:21 Grouping capability
31:42 Export of services
34:15 Reverse charge mechanism
35:10 Inbound digital supplies
36:40 Key message to businesses

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