Holding Companies - The VAT Challenge

Mondaq Business BriefingLuxembourg Articles in EnglishCorporate/Company Law (2010)

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Holding Companies - The VAT Challenge

This article was first published in ITR supplemental 8th Edition (Tax reference Library n°55).

Strategic holding companies are common features in global commercial and industrial organizations and are used tactically in M&A. Private equity houses also use holding companies extensively in the context of their transactions. In the absence of efficient service flows structuring, all these players are very likely to suffer significant VAT costs.

This article will review the developments of the VAT jurisprudence in this area and identify risks and opportunities deriving from the evolution of this jurisprudence. Indeed, the VAT concepts applicable to the holding companies have been evolving significantly in recent years and may seem quite complicated at the first sight. Attention must however be paid to the flows of services and their implications in the light of the VAT legislation. Indeed, inadequate structuring leads to VAT costs - VAT itself with rates ranging between 15% to 25% in the European Union - but also time-consuming administrative obligations.

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