On 6 March 2019, the European Court of Justice received question in case C-42/19 (Sonaecom). The question concerns the situation where input VAT is incurred on costs relating to an acquisition that is canceled.
Unofficial translation
Facts( simplified):
Sonaecom SGPS S.A. is a Portuguese holding company active in the acquisition, holding and management of shareholdings in companies. It has asked Wilmer Cutler Pickering Hale and Dorr and ABN Amro Corporate Finance Ltd for market research advisory services to be provided by those companies with a view to possible actions for the acquisition of shareholdings.
The service providers charged VAT in their services. Sonaecom claimed back this VAT in its Portuguese VAT Return.
This VAT claim included VAT with regard to the payment of a commission to the Banco BCP Investimento S.A. for an agreement to regulate, establish and guarantee the placement of the issuance by private offering of 3,000,000 bonds, which was intended to finance the activities of the company in the service called “Triple Play”.
Following an inspection, the Portuguese tax and customs authorities took the view that the applicant was not entitled to deduct the VAT which it had borne in respect of advisory services. The tax and customs service has applied arithmetic corrections to the taxable amount, which led to the assessment for additional assessment (€ 982,127.57 tax and € 106,548.20 compensatory interest).
Sonaecom appealed against those assessments to the Tribunal, which in its judgment held that Sonaecom had the characteristics of a “mixed holding company” and that the commercial nature of the transactions did not mean that that activity was classified as an economic activity that activity falls outside the scope of VAT.
With regard to the second act (the payment to BCP Investimento of a commission), the Tribunal held that since the capital in question had been fully transferred to the parent company of the group in this case, it had not been demonstrated whether and to what extent the associated companies benefited nor that an act was subsequently made which gave rise to the right to deduct.
Sonaecom argues that the input VAT relating to the acquisitions at issue is deductible in any case since, taking into account their nature, it must be assumed that those acquisitions are at least part of the costs which it must have incurred in order to provide the services which it usually grants to the companies in which it has a participation.
According to Sonaecom SGPS S.A. it must, on a regular basis, purchase supplies and services of a very diverse nature from third parties, since it is a ‘mixed’ holding company and it repeatedly and meaningfully participates in the management of the companies in which it holds a participation, in particular by cooperating in determining its strategy and providing services for a fee.
The referring court wants to know whether denying the deduction of input VAT is compatible with the rules on deduction of VAT laid down in the Sixth VAT Directive. The referring court refers to the judgments of the Court dealing with the treatment of holdings in other undertakings from a VAT point of view, citing C-60/90, C-80/95 and C-496/11; those cases are not, however, identical to the present case.
The referring court states that there are no judgments in which the Court has ruled on acts which exhibit the characteristics of the acts at issue here, whereby the acquisition of capital holdings for which market research services were purchased did not come about and where the bond loan was entered into with a view to their integration into the financing structure of the affiliated companies was ultimately made fully available to the group’s parent company because those investments were not made. The referring court considers that a reference for a preliminary ruling should therefore be requested from the Court.
Questions:
The Portuguese court asks the following questions to the European Court of Justice:
- Is Sonaecom entitled to input VAT recovery on advisory services related to market research for the purpose of acquiring capital participations, which acquisition did not take place?
- Can Sonaecom claim back the VAT on a commission for arranging and establishing a bond loan – taking into account that this loan would have been entered into with a view to integrating it into the financing structure of the companies in which it owns holdings and which, since those investments did not take place, was ultimately made entirely available to Sonae SGPS, the parent company of the group?
The case bears similarities to other ECJ case law, e.g. Polysar Investments Netherlands C-60/90; Harness & Helmet C-80/95; Portugal Telecom C-496/11.
Source: minbuza.nl (Dutch)
