The European Court of Justice on July 17 ruled that active holding companies may recover VAT on share acquisition costs and that German courts should determine the appropriateness of a German law that does not allow partnerships to be included in VAT groups.
The decision addressed the joined cases of Beteiligungsgesellschaft Larentia + Minerva mbH & Co KG v Finanzamt Nordenham and Finanzamt Hamburg-Mitte v Marenave Schiffahrts AG (C‑108/14 and C‑109/14).
Both cases concerned the conditions for deduction of VAT paid by holding companies to procure capital for the acquisition of a shareholding in subsidiaries that were partnerships and to which the holding companies later made supplies subject to VAT.
The ECJ concluded that a holding company may recover VAT incurred on expenditures to acquire shareholdings in subsidiaries if the holding company involves itself in the management of the subsidiaries after the acquisition.
If the holding company involves itself in the management of some but not all subsidiaries, deductibility of VAT paid on the expenditures should be determined through use of an appropriate apportionment method established by the Member State, the ECJ said.
The court further concluded that EU law precludes national legislation, such as the German law in question, which limits the right to form a VAT group to entities with legal personality and linked to the controlling company of that group in a relationship of subordination except where those two requirements are needed to prevent abusive practices or behavior or to combat tax evasion or tax avoidance. The Court said it was up to the referring German court to determine if the exception applied.
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