UK and International Tax news

CJEU Judgment On VAT And Holding Companies

Thursday 30th July 2015

The CJEU has recently released its judgment in the joined cases of Larentia + Minerva [C-108/14] and Marenave Schiffahrt [C-109/14] concerning input VAT recovery by holding companies on costs incurred in acquiring subsidiaries that they will actively manage.

The Court held that the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management and which, on that basis, carries out an economic activity must be regarded as belonging to its general expenditure and the VAT paid on that expenditure must, in principle, be deducted in full, unless certain output economic transactions are exempt from VAT under the Sixth Directive 77/388, as amended by Directive 2006/69, in which case the right to deduct should have effect only in accordance with the procedures laid down in Article 17(5) of that directive.

In addition, where the holding company involves itself in the management only of some of those subsidiaries and which, with regard to the others, does not, by contrast, carry out an economic activity, VAT paid on that acquisition expenditure may be deducted only in proportion to that which is inherent to the economic activity under a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to economic and to non-economic activities, and which it is for the national courts to establish.

In October 2014, and following the decision of the UK Court of Appeal in the case of Briitish Airport Authority (BAA) ([2013] EWCA Civ 112) [see our UK Tax News items of 28 February 2013 and 14 October 2014], HMRC updated its guidance and set out when it considers that VAT recovery may be possible and issued new guidance covering the following issues:

  • when a shareholding is used as part of an economic activity
  • when VAT may be recoverable by a holding company
  • the effect of a holding company joining a VAT group
  • how to treat mixed economic and non-economic activities

At the time HMRC also noted that as the German cases of Larentia + Minerva and others (C-108/14 and C-109/14) had been referred to the CJEU, the decisions in those cases were likely to be relevant to the issues described above. 

Give the judgment of the CJEU, it is expected that HMRC will review the policy contained in its guidance.

If you would like to discuss the above in more detail, please contact Keith Rushen on 0207 486 2378.

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