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Important ECJ Case-law on the disposal of shares - Deduction of input VAT allowed?

26 Nov 2009

The European Court of Justice (ECJ) has recently released an important judgement that is of interest to holding companies. Atoz, our Luxembourg member investigate why holding companies must plan next steps carefully to prevent suffering from high VAT costs.

Main findings:
The main findings of this case can be summarised as follows:

  • The disposal by a parent company of all its shares in subsidiaries in which it plays an active management role is an economic activity within the scope of VAT.
  • This type of disposal of shares is VAT exempt.
    Input VAT on costs incurred for the purposes of such disposal of shares can be (partially) deducted to the extent that there is a direct and immediate link between these costs and the overall activities of the active holding company.
  • In order to establish whether there is such a direct and immediate link, it is necessary to ascertain whether the costs incurred are likely to be incorporated in the price of the shares or whether they are only among the cost components of the holding's products.
  • Under some circumstances, a disposal of shares in subsidiaries in which a holding plays an active management role can be qualified as a transfer of going concern outside the scope of VAT. Under this approach, input VAT on costs incurred for the purposes of such disposal can be (partially) deducted.

Taxand's Take

This ECJ case law is very important for holding companies. It creates opportunities to deduct, at least partially, input VAT incurred within the framework of share disposals. The deduction of input VAT is however not straightforward as it must be considered in the light of all the circumstances surrounding such transactions.

Considering the prolific and complex ECJ jurisprudence applicable to holding companies, the deduction of input VAT must be considered with attention and must be carefully planned. Without the appropriate level of focus, holding companies are very likely to suffer from an indomitable VAT cost which can amount to millions of euros.

Your Taxand contact for further queries is:
Laurent Grencon
T. +352 26 940 251

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