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Marle Participations: VAT recovery on costs acquisition confirmed

VAT recovery on costs related to acquisition of subsidiaries by holdings letting buildings to these subsidiaries

On July 5, 2018, the Court of Justice of the European Union (the “CJEU”) delivered its judgment in the French case of Marle Participations (C-320/17) regarding the question whether the (intended) letting of an immovable property to a subsidiary constitutes direct or indirect involvement in the management of that subsidiary.

9 July 2018

In case of an affirmative answer the effect would be that the acquisition and holding of shares in that subsidiary are considered economic activities and input VAT on costs incurred by the holding may become recoverable.

The outcome in this case is of importance to the recovery of VAT on costs incurred by holding companies.

The Marle Participations case

Marle Participations is a holding company that lets buildings to its subsidiaries. The CJEU has ruled that the (intended) letting of a building by a holding company to its subsidiary amounts to involvement in the management of that subsidiary, which must be considered to be an economic activity giving rise to the right to deduct the VAT on the costs incurred by the holding for the purpose of acquiring securities in that subsidiary. The condition is that that supply of services – in this case the (intended) letting - is made on a continuing basis, that it is carried out for consideration and that it is taxed, meaning that the letting is not exempt, and that there is a direct link between the service rendered by the supplier and the consideration received from the beneficiary.

More generally, the CJEU also observes that the term ‘involvement of a holding company in the management of its subsidiary’ must be understood as covering all transactions constituting an economic activity, within the meaning of the VAT Directive, performed by the holding company for the benefit of its subsidiary. As such, the CJEU confirms that there is no need to exclude certain specific types of services, but that any taxed service against consideration would normally suffice for VAT recovery.

The CJEU continues by referring to its earlier case law that the costs connected with the acquisition of shareholdings in subsidiaries in the situation of Marle must be regarded as belonging to its general costs and the VAT paid on that expenditure must, in principle, be deducted in full.

Practical consequences

The judgment is positive for (holding) companies with the intention to perform a takeover, on the condition that the (intended) supply of services or goods to the new subsidiary are not VAT exempt, made on a continuing basis and against consideration. Making sure these conditions are met should allow VAT recovery on costs incurred.

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