On July 12, 2001, the ECJ issued its Order in the case C-102/00 (Welthgrove).
Context: Article 104(3) of the Rules of Procedure – Article 4 of the Sixth VAT Directive – Economic activity – Involvement of a holding company in the management of its subsidiaries
Article in the EU VAT Directive
Article 4, 11(A)(1)(a), 13(B) (d)(5) of the Sixth VAT Directive (Article 9, 73, 135(1)(f) of the EU VAT Directive 2006/112/EC).
Article 9 (Taxable person)
1. ‘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.
2. In addition to the persons referred to in paragraph 1, any person who, on an occasional basis, supplies a new means of transport, which is dispatched or transported to the customer by the vendor or the customer, or on behalf of the vendor or the customer, to a destination outside the territory of a Member State but within the territory of the Community, shall be regarded as a taxable person.
Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.
Article 135 (Exemption)
1. Member States shall exempt the following transactions
(f) transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2);
Facts
- The judgment making the reference explains that Welthgrove is an intermediate holding company which holds shares in a number of companies established in the European Union manufacturing plastic packaging.
- During the relevant period Welthgrove employed no staff. The members of its board of directors engaged in the active guidance of its subsidiaries, but Welthgrove charged no remuneration for those activities, although it received dividends from its subsidiaries.
- In respect of that period, Welthgrove deducted an amount of NLG 8 114 by way of VAT. The Netherlands tax authority, taking the view that Welthgrove was not involved in an economic activity and was therefore not entitled to deduct VAT, decided to recover that amount a posteriori. It confirmed its decision following an objection by Welthgrove.
- The appeal lodged by Welthgrove before the Gerechtshof te ‘s-Gravenhage (Regional Court of Appeal, The Hague) (Netherlands) was dismissed. The Gerechtshof found first of all that Welthgrove was involved in the management of the companies in which it held shares within the terms of the judgment in Case C-60/90 Polysar Investments Netherlands [1991] ECR I-3111. It further held that the dividends received by Welthgrove were to be regarded as remuneration for that involvement. Lastly it held that pursuant to the provision of Netherlands law implementing Article 13B(d)(5) of the Sixth Directive, those activities were exempt from VAT.
Questions
1. In light of the judgment in Polysar , particularly paragraphs 13 and 14, where a parent company involves itself in the management of a subsidiary, is the receipt of dividends from that subsidiary to be deemed to constituteconsideration for such involvement within the meaning of Article 11A(1)(a) of the Sixth Directive?
2. If the answer to the first question is in the negative, does the mere fact that the appellant involves itself in the management of its subsidiary companies, in the manner described in paragraph 14 of the Polysar judgment, mean that the appellant is to be deemed a taxable person within the meaning of Article 4 of the Sixth Directive?
AG Opinion
None
Decision (Order)
Involvement of a holding company in the management of its subsidiaries must be regarded as an economic activity within the meaning of Article 4(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, only in so far as it entails carrying out transactions which are subject to VAT by virtue of Article 2 of that directive.
Summary
The involvement of a holding company in the management of its subsidiaries constitutes an economic activity within the meaning of Article 4(2) of the Sixth Directive only if it is accompanied by transactions subject to VAT under Article 2 of that directive.
Source
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