In its Judgement of 5 July 2018 (C-320/17) ruled that the letting of a building by a holding company to a subsidiary constitutes an intervention in the management of the subsidiary. This constitutes an economic activity that entitles input tax to be deducted if it is provided on a sustainable basis and is taxable. Only the costs incurred by subsidiaries in whose management the holding company participates through taxable letting are affected.
The judgement was based on the following facts:
The corporate purpose of a holding company was, among other things, to manage shares in several subsidiaries of the Group. It also leased buildings to some subsidiaries and acquired/sold shares in the subsidiaries. This holding company deducted VAT in full from the purchase of securities and shareholdings that were incurred as part of a reorganisation. The tax authorities denied the input tax deduction in a subsequent tax audit. Following an unsuccessful appeal before the French administrative courts, the case was referred to the ECJ.
In its judgement, the ECJ clarifies that the mere acquisition, management and holding of participations does not constitute an economic activity within the meaning of the VAT Directive (see ECJ of 15 July 2015), unless the participation is associated with intervention in the management of the subsidiaries, which constitutes an economic activity. The letting of buildings can constitute such an intervention. The prerequisites are that the rental activity is sustainable, is provided for consideration, is taxed and that there is a direct connection between the service provided and the consideration received. If the holding company only participates in the management of some subsidiaries and not others, only a proportionate input tax deduction is granted. A suitable apportionment standard is to be determined by the Member States.
The ECJ's decision is an important judgement for German holding companies, as it was made in application of the VAT System Directive, which also applies to German companies.
