AG supports VAT recovery for active holding companies
Right to reclaim VAT should be allowed where a holding company manages its subsidiaries.
Advocate General (AG) Mengozzi of the Court of Justice of the European Union (CJEU) issued his opinion in German cases (Larentia + Minerva mbH & Co. KG) on 26 March 2015 that involve the ability of a holding company to obtain a refund of input VAT, as well as the ability of a partnership to join a VAT group. According to AG Mengozzi, “active holding companies” that make taxable supplies of management services should be entitled to reclaim VAT incurred on corporate acquisition costs.
In many EU member states, a holding company, i.e. a company whose main business is to hold shares in other companies, does not qualify as an entrepreneur for VAT purposes and, therefore, is not entitled to deduct input VAT incurred on the supply of services it provides to its subsidiaries. Under German law, a holding company may reclaim VAT only in respect of a supply of services relating to a recharge of management costs.
In past cases, the CJEU has made a distinction between passive and active holding companies. A passive holding company only holds equity in other companies--it does not manage its subsidiaries. As a result, a passive holding company does not carry out economic activities for VAT purposes and hence is not entitled to reclaim VAT. An active holding company, however, actively manages its subsidiaries and should be entitled to recover input VAT on a pro rata basis (i.e. in proportion to the economic and non-economic activities carried out by the holding company).
A CJEU decision accepting AG Mengozzi’s opinion that a holding company should be able reclaim VAT on services provided to acquire other companies would have a significant impact in Germany because Germany current position is that such VAT is linked to a non-business shareholding activity and not to economic activities.