Unrestricted VAT Deduction For Active Holding Companies

Background

The background was the following. Marle Participations ("Marle") is the holding company of the Marle group. In addition to its shareholding activities, Marle also rents out buildings to group subsidiaries. In the context of a group restructuring, Marle was involved in acquisitions and sales of shares in subsidiaries. In this respect, Marle applied a full input VAT deduction right on expenses relating to this restructuring which was later rejected by the French tax authorities. Marle pought the case before the Conseil d'Etat which referred to the CJEU on the question of the input VAT deduction on restructuring expenses by a holding company performing taxable real property lease activities for its subsidiaries.

Decision

The CJEU first drew attention to its well-established case-law whereby a holding company benefits from an input VAT deduction right in the event that it is involved directly or indirectly in the management of its subsidiaries through the supply of transactions subject to VAT such as administrative, accounting, financial, commercial, information technology and technical services. In this respect, the Court further specified that these examples of activities are however not exhaustive meaning that the term "involvement in the subsidiary's' management" should be understood as covering all transactions constituting a taxable economic activity.

As a result, a holding company which provides property lease activities to its subsidiaries should be considered to be involved in the management of its subsidiaries if (i) the supply of letting services is made on a continuing basis, (ii) the supply is taxable and (iii) it is carried out for consideration implying the existence of a direct link between the services rendered and the considerations received.

With regard to the extent of the holding company's input VAT deduction right, the CJEU referred to its settled case-law:

if a holding company is involved in the management of all its subsidiaries, expenses connected with the transactions in subsidiaries' shares are deemed to form part of the company's general costs implying that the input VAT on such expenses would be fully deductible; if a holding company is only involved in the management of some of its subsidiaries, expenses...