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 http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:61990CJ0060).
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.
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