On Jamuary 12, 2017, the ECJ issued its decision in the case C-28/16 (MVM).
Context: Reference for a preliminary ruling — Article 99 of the Rules of Procedure of the Court of Justice — Value added tax — Directive 2006/112/EC — Articles 2, 9, 26, 167, 168 and 173 — Deduction of input tax — Taxable person simultaneously carrying out economic and non-economic activities — Holding company supplying services to its subsidiaries free of charge
Article in the EU VAT Directive
Articles 2, 9, 26, 167, 168 and 173 of the EU VAT Directive 2006/112/EC
Article 2(1) (Taxable transactions)
‘The following transactions shall be subject to VAT:
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
Article 9(1) (Taxable person)
‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’
Article 26(1) (Taxable transactions)
Each of the following transactions shall be treated as a supply of services for consideration:
(b) the supply of services carried out free of charge by a taxable person for his private use or for that of his staff or, more generally, for purposes other than those of his business.’
Article 167 (Right to deduct VAT)
A right of deduction shall arise at the time the deductible tax becomes chargeable.
Article 168 (Right to deduct VAT)
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
Article 173(1) (Proportional Deduction)
‘In the case of goods or services used by a taxable person both for transactions in respect of which VAT is deductible pursuant to Articles 168, 169 and 170, and for transactions in respect of which VAT is not deductible, only such proportion of the VAT as is attributable to the former transactions shall be deductible.
Facts
- MVM is a State-owned commercial company active in the energy sector. It leases power plants and fibre optic networks as well as being the owner of a number of companies which mainly generate or sell electricity.
- By entering into a ‘contract of control’, within the meaning of Hungarian law, with its subsidiaries, MVM established a recognised corporate group under Hungarian law (‘the group’). However, the establishment of such a group did not have the effect of creating a separate legal person or of depriving the members of the group of their own autonomous legal personality. In addition, those members did not accede to a group tax scheme for VAT purposes.
- The dispute in the main proceedings concerns the decision taken by the tax authorities following an inspection of MVM’s tax returns in relation to VAT for the 2008, 2009 and 2010 fiscal years.
- During that period, MVM was responsible for the strategic management of the group. For that purpose, it procured legal, business-management and public-relations services for the benefit of (i) itself, since those services were provided in relation to its leasing of power plants and fibre optic networks, subject, as such, to VAT; (ii) the entire group; and (iii) each of the members of the group. MVM deducted the VAT relating to all of those services. However, even when those services were in the interest of the entire group or related directly to the taxed activities of the other members of the group, MVM did not, save for a few exceptions, charge its subsidiaries for those services. Nor did MVM impose a general charge on the group for its strategic management, with the result that it carried out that activity free of charge.
- The tax authorities took the view that, under the Law CXXVII of 2007 on VAT, the VAT relating to the legal, business-management and public-relations services could be deducted only to the extent to which MVM had used those services in order to effect supplies of goods or services. Thus, the tax authorities refused MVM the right to deduct the VAT relating to those services where the services had been carried out in the interest of the other members of the group or where the services concerned business-management services related mainly to the acquisition of shareholdings (‘the services at issue’). In those circumstances, the tax authorities considered MVM to be the ultimate beneficiary of those services.
- MVM brought an action against the decision of the tax authorities in which it claimed that the services at issue constituted general expenses relating to its taxable activity since it was a taxable person for the purpose of VAT and did not carry out any activities which were exempt from tax. In the context of that action, MVM also claimed that the fact that it did not charge its subsidiaries did not affect its right to deduct VAT.
- The court of first instance dismissed that action on the ground that the services at issue had not been used in the pursuit of a taxable activity for the purpose of VAT and that there was no right to deduct input VAT paid for such services.
- MVM brought an appeal on a point of law before the referring court, the Kúria (Supreme Court, Hungary).
- The referring court notes that, during the period at issue in the proceedings before it, MVM operated as a passive holding company as regards billing in so far as, in principle, its subsidiaries paid it only dividends, but as an active holding company in relation to its centralised management of the activities of the group.
- However, the Kúria notes that, from an economic point of view, the charging by a holding company of its subsidiaries for services, in a purely national group of companies, is merely a technical matter. Furthermore, that court takes the view that MVM does not perform any acts free of charge since, in return for the services which it provides, ostensibly without remuneration, to its subsidiaries, it obtains higher dividends.
Questions
May a holding company which plays an active role in the management of certain affairs of its subsidiaries, or of the group of companies as a whole, but which does not pass on to its subsidiaries the cost of the services carried out in relation to its active holding activity or the corresponding VAT be regarded as a taxable person for the purpose of VAT in respect of those services?
If the first question is answered in the affirmative, may the active holding company exercise the right to deduct the VAT corresponding to the services used by it which are directly related to the taxed economic activity of some of its subsidiaries, and if so in what way?
If the first question is answered in the affirmative, may the active holding company exercise the right to deduct the VAT corresponding to the services used which are in the interest of the group of companies as a whole, and if so in what way?
Do the answers to be given to the above question differ if the active holding company bills its subsidiaries in respect of the abovementioned services as intermediary services, and if so to what extent?
AG Opinion
None
Decision (Order)
Articles 2, 9, 26, 167, 168 and 173 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that, in so far as the involvement of a holding company, such as that at issue in the main proceedings, in the management of its subsidiaries, where it has charged those subsidiaries neither for the cost of the services procured in the interest of the group of companies as a whole or in the interest of certain of its subsidiaries, nor for the corresponding VAT, does not constitute an ‘economic activity’, within the meaning of that directive, such a holding company does not have the right to deduct input VAT paid in respect of those services in so far as those services relate to transactions falling outside the scope of that directive.
Summary
The involvement of a holding company in the management of its subsidiaries does not constitute an economic activity if the holding company does not charge its subsidiaries, nor the price of the services it has procured in the interest of the entire group of companies or of certain of them, nor the VAT so that such a holding company is not entitled to deduct input VAT on the services concerned in so far as they relate to transactions falling outside the scope of that directive.
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