VAT deduction by a holding entity. Binding consultation of December 20, 2019, number V3480-19
The consulting entity is a holding company that also acts as the CEO of the subsidiary, receiving an annual remuneration for said position.
Due to the acquisition of the rest of the share capital of the subsidiary through a public tender offer, it has incurred expenses of financial intermediaries and legal advice, with VAT, so given its status as a holding entity, it is questioned whether it can deduct the input tax of such services.
Firstly, the Spanish General Tax Directorate (DGT) establishes the difference between “pure holding” and “mixed holding”, in accordance with the criteria set by the ECJ, especially in the judgments of Polysar Investments (June 20, 1991), and Harnas & Helm (February 6, 1997) on the one hand, and in the Portugal Telecom judgment (September 6, 2012), on the other hand.
According to these judgments and the criteria expressed by the ECJ, the mere acquisition and possession of shares should not be considered as an economic activity, since it does not constitute the exploitation of a goods in order to obtain continued income over time. However, when the holding company intervenes directly or indirectly in the management of investee companies, it does constitute an economic activity, such as the provision of administrative, financial, commercial or technical services to investees. In this sense, the concept of intervention of a holding company in the management of its subsidiary includes all the operations that constitute an economic activity, carried out by the holding company for the benefit of its subsidiary.
Therefore, to the extent that these services are provided, the holding entity will have the qualification of “mixed holding”, with the right to deduct when performing an economic activity. However, the nature of expenses must be distinguished, since the possibility of deduction is always linked to the VAT quotas borne being related to operations that generate the right to deduction.
In this sense, the DGT recalls that, according to the ECJ case-law, the expenses inherent to operations that are not an economic activity cannot be deducted, since these expenses are not part of the costs of the operations for which the VAT is charged in these services. However, to the extent that the costs of such services are part of the general expenses of the taxpayer and, as such, are integrated in the price of a company’s products, they have a direct relationship with the economic activity as a whole.
Consequently, the deduction will depend on the activity of the company and, if it performs indistinctly operations with the right to deduction and operations that do not entail such right, only the part that is proportional to the amount of the operations with the right to deduction can be deducted. If the expenses are exclusively from the economic activity, with the right to deduct, they can be fully deducted.
In this case, the DGT considers that the status of CEO of its subsidiary, for which it receives a remuneration, enables it as an entrepreneur or professional who performs an economic activity. However, the deduction of the expenses mentioned in the consultation will depend on their relationship with said economic activity.