Recharging costs does not lead to status of taxable person for VAT purposes
In practice, it is often stated that a holding company qualifies as a taxable person for VAT purposes because of the recharges of costs that are charged with VAT.
13 juli 2018
If a holding company qualifies as a taxable person it is able to deduct the input VAT on costs incurred in so far as it concerns recharges of costs that are charged with VAT. In a recent procedure before the Dutch Court of Appeal Arnhem-Leeuwarden the interested party, a holding company, took the position that it qualified as a taxable person for VAT purposes due to the fact that it recharged costs to its subsidiaries.
During the proceedings the interested party tries to make a reasonable case based on facts and circumstances to underpin that it acts as a taxable person for VAT purposes. It states that it is responsible for the day-to-day management of the group and that it determines which services are purchased, which services are charged to the subsidiaries and which costs remain for its own account.
The Court of Appeal rules that the management of a subsidiary must be regarded only as an economic activity in so far as it entails carrying out transactions which are subject to VAT for the subsidiaries. According to the Court, the interested party did not make it plausible that in this case there was a taxable transaction. The actions and decisions referred to by the interested party cannot be attributed to the interested party, but must be attributed to the shareholder (director/owner) of the interested party. Nor did the holding company add value to the purchased services or do or refrain from doing anything itself. It is not sufficient that the interested party is a statutory director of the subsidiaries to which the costs are recharged.
We advise to document the recharges of costs as much as possible in written (service) agreements in which a link is made between the activities of the entity that recharges the costs and the costs charged as much as possible.