- Spain’s Supreme Court will rule on VAT deductibility rules for holding companies selling subsidiary shares within a group.
- A holding company can be passive (holding shares), active (providing management services), or mixed (both holding shares and providing services).
- For VAT purposes, merely holding shares is not an economic activity, so input VAT cannot be reclaimed.
- Mixed holding companies may partially deduct input VAT related to management activities.
- The case involves a mixed holding company that deducted all input VAT, but the Spanish tax administration disallowed it, citing the sale of shares as a “financial activity” exempt from VAT.
- The tax administration differentiated between:
- Management support services (full VAT deduction allowed).
- Financial activities (exempt from VAT, no input VAT deduction).
- The Supreme Court will decide:
- If the sale of shares should always be a “financial activity” or could be an ancillary transaction for pro-rata deduction purposes.
- If intragroup share transfers fall outside Spain’s VAT law, specifically under article 7.1, which excludes the transfer of an autonomous economic unit from VAT scope.
- The decision is significant as it could establish a general framework for VAT treatment of mixed holding companies and affect the ability of group parent companies to deduct input VAT.
Source: bdo.global
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
