InBeteiligungsgesellschaft Larentia + Minerva mbH & Co. KG v Finanzamt Nordenham(C-108/14) andFinanzamt Hamburg-Mitte v Marenave Schiffahrts AG(C-109/14) (16 July 2015), the CJEU found that holding companies can deduct input tax to the extent that they are involved in the management of their subsidiaries.
Larentia + Minerva had acquired 98% of the shares in two subsidiaries – constituted in the form of limited partnerships – which it provided with administrative and business services. Marenave had increased its capital and acquired shares in four ‘limited shipping partnerships’, and was involved in their management.
The issue was the extent to which deductions were allowed, in relation to input tax incurred on acquisition and issue costs.
The CJEU observed that the holding of shares is not an economic activity, unless the holding is accompanied by direct or indirect involvement in the management of the company. Furthermore, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction.
The CJEU concluded that the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involved itself in their management – and which, on that basis, carried out an economic activity – must be regarded as attributed to that company’s economic activity; and therefore that VAT incurred on that expenditure was deductible. The deduction of VAT would only be limited if the costs were attributed in part to other subsidiaries, in the management of which the holding companies were not involved.
Finally, the CJEU found that the Sixth Directive Art 4 precludes national legislation which reserves the right to form a VAT group solely to ‘entities with legal personality and linked to the controlling company of that group in a relationship of subordination’; except where those two requirements are appropriate and necessary to prevent abusive practices or to combat tax evasion or tax avoidance.
Why it matters: This decision confirms that VAT incurred by holding companies involved in the management of their subsidiaries is deductible. Some uncertainty as to the required level of involvement may remain, however.
InBeteiligungsgesellschaft Larentia + Minerva mbH & Co. KG v Finanzamt Nordenham(C-108/14) andFinanzamt Hamburg-Mitte v Marenave Schiffahrts AG(C-109/14) (16 July 2015), the CJEU found that holding companies can deduct input tax to the extent that they are involved in the management of their subsidiaries.
Larentia + Minerva had acquired 98% of the shares in two subsidiaries – constituted in the form of limited partnerships – which it provided with administrative and business services. Marenave had increased its capital and acquired shares in four ‘limited shipping partnerships’, and was involved in their management.
The issue was the extent to which deductions were allowed, in relation to input tax incurred on acquisition and issue costs.
The CJEU observed that the holding of shares is not an economic activity, unless the holding is accompanied by direct or indirect involvement in the management of the company. Furthermore, for VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction.
The CJEU concluded that the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involved itself in their management – and which, on that basis, carried out an economic activity – must be regarded as attributed to that company’s economic activity; and therefore that VAT incurred on that expenditure was deductible. The deduction of VAT would only be limited if the costs were attributed in part to other subsidiaries, in the management of which the holding companies were not involved.
Finally, the CJEU found that the Sixth Directive Art 4 precludes national legislation which reserves the right to form a VAT group solely to ‘entities with legal personality and linked to the controlling company of that group in a relationship of subordination’; except where those two requirements are appropriate and necessary to prevent abusive practices or to combat tax evasion or tax avoidance.
Why it matters: This decision confirms that VAT incurred by holding companies involved in the management of their subsidiaries is deductible. Some uncertainty as to the required level of involvement may remain, however.
