ECJ confirms deduction VAT on acquisition costs active holding company
On 5 July the European Court of Justice (“ECJ”) has delivered its ruling in the Marle Participations case (C-320/17).
The Marle Participations case is about deduction of VAT on costs (“input VAT”) incurred in connection with the acquisition of shareholdings in subsidiaries.
Marle Participations (“Marle”) is the holding company of the Marle group. Marle provided VAT taxed services to several subsidiaries, which services consisted of the letting of a building. Marle conducted a restructuring operation which led it to make sales and acquisitions of shareholdings in subsidiaries and fully deducted input VAT on costs connected with that restructuring operation. The question arose whether Marle was entitled to full deduction of input VAT on these costs.
Under previous case law of the ECJ it was decided that deduction of VAT was allowed if the holding company (i) was involved in the management of its subsidiary and (ii) provided services for consideration to the subsidiary.
The ECJ has now ruled that deduction of input VAT in connection with the acquisition of a subsidiary is allowed simply if the holding company provides any type of VAT taxed services – such as the letting of a building – to its subsidiaries. According to the ECJ, such holding company is deemed to be involved in the management of its subsidiaries.
As already apparent from settled case law of the ECJ, input VAT incurred in connection with the acquisition of shareholdings in subsidiaries must be regarded as general costs. This implies that if Marle lets the building to all its subsidiaries, input VAT can be fully deducted.
The ruling of the ECJ is welcome as it should simplify discussions with tax authorities regarding these topics.
Previously it was not clear to what extent a holding company had to be involved in the management of its subsidiary and how such involvement should be measured. With this ruling the necessary involvement is deemed present if the holding company provides services for consideration to its subsidiary.
Another point of uncertainty was what type of service a holding company had to provide to its subsidiary in order to qualify for input VAT deduction. With this ruling it is clear that this can be any type of VAT taxed service.
We will keep you posted on further developments in this field. If you have any questions please contact one of our advisers of the Loyens & Loeff Indirect Tax team.