The European Court of Justice provides clarity on the VAT deduction right of holding companies

Tax VAT deduction holding companiesOn July 16, 2015, the European Court of Justice (ECJ) published an important decision on the VAT deduction right for holding companies. In the combined legal proceedings of Larentia + Minerva and Marenave, the ECJ ruled that active holding companies can fully deduct the VAT paid on the costs of acquiring services if there is a link with the VAT taxable supplies they perform against remuneration.


Both holding companies, Larentia + Minerva and Marenave, incurred VAT in relation to their acquisition of shareholdings in subsidiaries and deducted the VAT.

Larentia + Minerva owns 98% of the shares in two subsidiaries, and provides them – as ‘management holding company’ – with administrative and business services against remuneration. The VAT incurred in relation to the funding of the acquisition of the subsidiaries by raising capital from a third party was deducted in full by Larentia + Minerva.

Marenave also incurred – and subsequently deducted – VAT in relation to funding of the acquisition of shares in four subsidiaries, as it raised the required capital through the issue of new shares. Similar to Larentia + Minerva, Marenave performs management services to its subsidiaries against remuneration.

In both cases, the German tax authorities did not allow a deduction of the input VAT incurred in full on the basis that the VAT costs should be partially allocated to the mere holding of shares in the subsidiaries which, being a non-economic activity, does not give the right to recover input VAT.

Key question referred for a preliminary ruling

In short, the referring German court wishes to learn whether holding companies such as Larentia + Minerva and Marenave may deduct (and to what extent) the input VAT incurred in connection with the acquisition of their shareholdings in subsidiaries.

Decision of the ECJ

It follows from the VAT Directive that the involvement of a holding company  in the management of its subsidiaries against remuneration constitutes an economic activity. As a result, the supply of management services such as administrative, financial, commercial and technical services by a holding company to its subsidiaries against remuneration is subject to VAT. For VAT incurred by a (holding) company to be deductible there must generally be a direct and immediate link between the companies’ input and output transactions. Nonetheless, a right to deduct also exists where the costs incurred form part of the (holding) company’s general costs and are, as such, a component of the price of the goods and/or services it supplies.

In its Judgment of July 16, 2015, the ECJ holds that where a holding company is involved in the management of all of its subsidiaries, hence carrying out an economic activity, the expenses incurred by it in connection with the acquisition of shareholdings in subsidiaries must be regarded as attributed to that company’s general costs.  As a result, the VAT paid on these expenses is fully deductible, unless the output transactions are exempt from VAT.

Where a holding company is involved in the management in some but not all its subsidiaries, thus only carrying out an economic activity with regard to some subsidiaries, the incurred VAT would only be partially deductible to the extent it can be attributed to the economic activity. It is up to the individual Member States to determine the VAT deduction method to be applied in this regard.

Interim statement

The fact that a holding company also conducts non-economic activities such as the holding or acquisition of shares does not necessarily mean that it would be restricted in its right to deduct input VAT.

UAB Sveda

Lastly, we would like to make a compare with the Lithuanian case of Sveda [1] brought before the ECJ which also concerns the deduction of input VAT. In these legal proceedings, Sveda build a ‘discovery path’ which can be used by the public free of charge in order to attract more customers for its shops. Sveda deducted the VAT on the costs related to the construction of the path, however was denied deduction by the Lithuanian tax authority likely because in their view there does not exist a sufficient link between the costs incurred in connection with the construction of the path and the taxable economic activity of Sveda, i.e., the retail business.

Advocate General Ms. Kokott suggests to permit taxpayers such as Sveda to recover input VAT incurred with the production or acquisition of investments goods (e.g., the path in this case) which are directly designated for use by the public free of charge, but which can be used as a means to attract visitors to a place where the tax payer intends to supply goods and/or services in relation to its economic activities.

Having regard to the combined legal proceedings of Larentia + Minerva and Marenave, it is well argueble that the VAT incurred by Sveda should be fully deductible. The input transactions of Sveda (i.e., construction services) seem to have a direct and immediate link with Sveda’s economic activity as a whole (i.e., the retail business). Just like in the combined legal proceedings, the conducting of a non-economic activity should not lead to a restriction in the right to deduct input VAT. We are interested to see if the ECJ will indeed make such a decision and if any references will be made to the combined legal proceedings.

Read the ECJ judgement

[1] Opinion from advocate general of the ECJ Kokott, C-126-14

Authors: Stephanie van der Schaft and Shanna van den Maagdenberg

Over de auteur


Stephanie van der Schaft

Stephanie van der Schaft is a member of the Tax group. She advises on Dutch corporate, individual and international tax law with particular emphasis on corporate restructurings and the advance tax ruling practice area. Prior to working in our Amsterdam office, she worked for two years in the Hong Kong - China tax practice in our Hong Kong office, and is coordinating many (large) international tax projects.