VAT deduction for holding companies

ConstantinosEU

Hamburg

On 20 July 2014 the European Court of Justice issued a judgement concerning the VAT deduction for holding companies.

The CJEU confirmed that active holding companies should have the right to fully reclaim the input costs incurred in relation to the acquisition of shares in those subsidiaries. An apportionment of the input VAT is only required if the holding company makes VAT exempt supplies to its subsidiaries.

In addition, the Court concluded that holding companies managing only some of its subsidiaries will now need to determine the calculation method for the deduction of their input VAT costs, based on an apportionment between economic and non-economic activities. There is a risk that tax authorities may consider re-assessing the input VAT previously deducted by these entities (up to the time limits applicable).

In light of this decision, various EU Member States are likely to revise their current practice on the VAT recovery of holding companies and the VAT grouping requirements imposed in their national legislation.

The judgment relates to joined cases Larentia + Minerva and Marenave Schiffahrts.

Note: A pure investment holding company is a company whose main business activity is the acquisition of shares (holding) in other companies, without taking part in the management and administration of these companies either directly or indirectly, and is treated as not performing an economic activity for VAT purposes and therefore is not a taxable person for VAT purpose. This post refers to holding companies who perform such activities and are considered as carrying out economic activities for VAT purposes.

Sources:

European Court of Justice

Court of Justice allows deduction of VAT for holding companies on pro rata basis