New VAT-judgment from the CJEU gives rise to an adjustment of Danish practice
On 5 July 2018 the Court of Justice of the European Union held that holding companies' letting of buildings to subsidiaries is to be considered an economic activity. When the holding company is voluntarily registered for VAT with respect to the letting, the holding company has a right to deduct VAT paid on general expenditure. The judgment should give rise to an adjustment of Danish practice, as the Danish Customs and Tax Administration (SKAT) stated the opposite in guidelines from 2015, ie that the letting of machinery and immovable property does not constitute an economic activity.
The facts of the case
The case concerned a French holding company whose only activity consisted in letting immovable property to its subsidiaries. In 2009 the holding company conducted a restructuring operation of the group that included sales and acquisitions of securities, and in that connection it paid various expenses that were subject to VAT. The French tax authorities refused the holding company's request for a right to deduct VAT because the authorities found that the letting of immovable property was not an economic activity giving rise to a right to deduct VAT.
The decision of the Court of Justice of the European Union
The Court of Justice of the European Union (the "Court") observed that a holding company carries out economic activities where holdings in companies are accompanied by direct or indirect involvement in the management of the companies in which the interests are held. However, it is not to be considered an economic activity if the involvement in question merely follows from the holding company's rights as a shareholder.
The Court has previously held that the involvement of a holding company in the form of the supply of administrative, financial, accounting, commercial, information technology and technical services constitutes economic activities. The Court states that these examples are not exhaustive, and in the judgment in question the Court supplements the mentioned examples by holding that the letting of immovable property to a subsidiary is also to be considered an economic activity giving rise to the right to deduct VAT. However, this presupposes that the letting is made on a continuing basis, is carried out for consideration and is comprised by voluntary VAT registration for the leasing of immovable property.
The Court further concludes that expenditure connected with the acquisition of shareholdings in subsidiaries must be general expenditure which the holding company may deduct in full. Moreover, it should be noted that the Court points out that for the purposes of assessing the right to deduct VAT, no account should be taken of the turnover achieved by the holding company from the letting to subsidiaries and the income from its holdings in such subsidiaries.
The importance of the judgement to Danish practise
In 2015, the Danish Customs and Tax Administration ("SKAT") sent out guidelines as to when holding companies are to be considered to carry out economic activities. It is stated in the guidelines that the letting of eg machinery and immovable property cannot be considered involvement in the administration of the subsidiaries, and that this activity therefore does not constitute an economic activity giving rise to the right to deduct VAT.
The EU judgment should result in an adjustment of Danish practice and it is therefore to be expected that SKAT will send out new guidelines taking into consideration the most recent EU judgement. Holding companies which have let out eg machinery and immovable property with VAT and have so far not been granted a right to deduct VAT will have a right to have such VAT liability reopened.
Click here to read the judgment
Click here to read the guidelines (in Danish)