On 5th of July 2018, the ECJ released its judgment in the case of Marle Participations SARL (C-320/17), which dealt with input VAT deductibility by a holding company on expenses relating to the acquisition of shares, where the holding company is also involved in the management of that subsidiary.
This is another important decision enhancing the eligibility of holding companies involved in the management of their subsidiaries to claim input VAT on acquisition costs.
A brief outline of the background facts of the above case is presented below:
Marle Participations (hereinafter “Marle”) is the French holding company of Marle Group, which deals with manufacturing of orthopedic implants. Its main purpose is the management of its subsidiaries and also the letting of a building to them for the purposes of conducting their operations. During 2009, Marle performed a restructuring leading to the sale and acquisition of shares. The input VAT incurred on the restructuring services was deducted in full by Marle. After an investigation by the French Tax Authorities, they questioned the eligibility of Marle to deduct that input VAT, on the grounds that the input VAT claimed related to an expense for the implementation of a capital transaction not giving right to claim the input VAT.
Marle objected to the Administrative Court of Appeal in France where the Court referred a question to the ECJ to clarify whether the letting of a building constituted active involvement in the management of Marle’s subsidiaries.
The French Court of Appeal, wonders whether Marle by letting a building, is involved in the management of its subsidiaries and thus performs economic activities and for this reason proceeded to refer the following question to the European Court of Justice for a preliminary ruling:
“Does the letting of a building by a holding company to a subsidiary constitute direct or indirect involvement in the management of that subsidiary, the effect of which being that the acquisition and holding of shares in that subsidiary are considered economic activities within the meaning of the [VAT] Directive, and, if so, under what conditions?”
The Court referred to previous judgments (cases Larentia + Minerva and Marenave Schiffahrt) and stated that a holding company actively involved in the management of its subsidiaries is considered to be performing economic activities. Therefore, a holding company is eligible to recover VAT incurred on expenses relating to the acquisition of shares, to the extent that it is involved in the management of the acquired subsidiary.
As stated by the Court, there are no clear cut rules for the definition of “involvement of the holding company in the management of its subsidiaries” rather than covering transactions constituting economic activities, within the meaning of the VAT Directive. The list of services mentioned in previous cases (administrative, financial, commercial and technical services) is not exhaustive.
By examining certain Articles of the VAT Directive and previous judgments the Court ruled the following:
The letting of a building by a holding company to its subsidiary constitutes involvement in the management of that subsidiary and thus performing economic activities, to the extent that:
A partial eligibility on recovering input VAT on expenses relating to the acquisition of a subsidiary is given, in cases where the holding company is involved partially in the management of that subsidiary.
This means that, if the holding company is also involved in the supply of let’s say exempt financing to the subsidiary to which it rents the property or to other subsidiaries, input VAT must be apportioned.
Although a lot of questions remained unanswered and new questions arise, this judgment enhances the position that holding companies involved in the management of their subsidiaries could benefit from the eligibility to claim input VAT on expenses relating to the acquisition of shareholding in the subsidiaries under management.
We highly suggest that all affected businesses should carefully reassess their VAT affairs, since they could benefit ECJ’s decision on the above issue.
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