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On March 6, 2025, the ECJ issued the AG Opinion in the case C-808/23 (Högkullen).
Context: Request for a preliminary ruling – Tax law – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 72 – Open market value – Article 80 – Revaluation of the taxable amount – Holding company whose sole activity consists of supplying taxable services to its subsidiaries – Determination of the open market value – Prevention of tax evasion or avoidance
Summary
- Context of the Case: Högkullen AB, a Swedish holding company, provides various management services to its subsidiaries, generating a VAT-related dispute with the Swedish tax authority regarding the taxable amount for these services.
- Disputed Tax Calculations: The tax authority argues that the consideration for Högkullen’s services is below the open market value, asserting that the taxable amount should be based on the company’s total expenditure rather than the actual consideration received from subsidiaries.
- Legal Framework: The case involves the interpretation of Articles 72 and 80 of the VAT Directive, which pertain to the determination of open market value and the conditions under which Member States can revalue the taxable amount to prevent tax evasion.
- Preliminary Ruling Questions: The Supreme Administrative Court of Sweden seeks guidance on whether it is appropriate to classify Högkullen’s services as unique and whether all company expenditures, including capital-raising costs, should be included in determining the taxable amount for VAT purposes.
- AG’s Opinion: The Advocate General opines that Högkullen’s management services should not automatically be considered unique services, suggesting that the open market value can be determined based on comparable market prices for similar services, rather than solely on the holding company’s total expenditures.
Articles in the EU VAT Directive
Article 72& 80 of the EU VAT Directive 2006/112/EC.
Article 72
For the purposes of this Directive, ‘open market value’ shall mean the full amount that, in order to obtain the goods or services in question at that time, a customer at the same marketing stage at which the supply of goods or services takes place, would have to pay, under conditions of fair competition, to a supplier at arm’s length within the territory of the Member State in which the supply is subject to tax.
Where no comparable supply of goods or services can be ascertained, ‘open market value’ shall mean the following:
(1) in respect of goods, an amount that is not less than the purchase price of the goods or of similar goods or, in the absence of a purchase price, the cost price, determined at the time of supply;
(2) in respect of services, an amount that is not less than the full cost to the taxable person of providing the service.
Article 80
1. In order to prevent tax evasion or avoidance, Member States may in any of the following cases take measures to ensure that, in respect of the supply of goods or services involving family or other close personal ties, management, ownership, membership, financial or legal ties as defined by the Member State, the taxable amount is to be the open market value:
(a) where the consideration is lower than the open market value and the recipient of the supply does not have a full right of deduction under Articles 167 to 171 and
(b) where the consideration is lower than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177 and the supply is subject to an exemption under Articles 132, 135, 136, 371, 375, 376, 377, 378(2), 379(2) or Articles 380 to 390c;
(c) where the consideration is higher than the open market value and the supplier does not have a full right of deduction under Articles 167 to 171 and Articles 173 to 177.
For the purposes of the first subparagraph, legal ties may include the relationship between an employer and employee or the employee’s family, or any other closely connected persons.
2. Where Member States exercise the option provided for in paragraph 1, they may restrict the categories of suppliers or recipients to whom the measures shall apply.
3. Member States shall inform the VAT Committee of national legislative measures adopted pursuant to paragraph 1 in so far as these are not measures authorised by the Council prior to 13 August 2006 in accordance with Article 27 (1) to (4) of Directive 77/388/EEC, and which are continued under paragraph 1 of this Article.
Facts
- Company Structure and Services: Högkullen AB, a Swedish holding company, manages real estate through 19 subsidiaries, providing intra-group services such as management and financing, which are fully subject to VAT. In 2016, it invoiced approximately SEK 2.3 million to its subsidiaries using a cost-plus method for determining service fees.
- VAT Deductions and Expenditure: The holding company incurred total expenditures of around SEK 28 million, with about half related to input services subject to VAT. It deducted all input VAT amounts from its VAT liability, including those input services not factored into the calculation of its service fees.
- Tax Dispute and Court Decisions: The Swedish Tax Agency disputed the holding company’s invoiced amount, asserting it was below market value and reevaluated it based on total expenditure. The first-instance court sided with the holding company, but an appeal by the Tax Agency reversed that decision, leading to a further appeal from the holding company regarding the proper taxable amount for its services.
Questions
- (1) When applying national provisions on the revaluation of the taxable amount, is it compatible with Articles 72 and 80 of the VAT Directive, where a parent company provides its subsidiaries with services of the kind at issue in the present case, always to regard those services as unique services whose open market value cannot be determined by means of a comparison such as that provided for in the first paragraph of Article 72?
- (2) When applying national provisions on the revaluation of the taxable amount, is it compatible with Articles 72 and 80 of the VAT Directive to consider that the total expenditure of a parent company, including the costs of raising capital and shareholder costs, constitutes the cost incurred by the company in providing services to its subsidiaries, where the parent company’s sole activity consists of the active management of its subsidiaries and the parent company has deducted all the input VAT paid on its acquisitions?
AG Opinion
Article 72 and 80 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the various management services (in the present case: company management and financing services, as well as real estate, IT and personnel management services), provided by a managing holding company to its subsidiaries, are by no means always unique services for which it is impossible from the outset to determine a comparison value for the purposes of the first paragraph of Article 72 of that directive.
Source
Other ECJ Cases referred to
- Polysar Investments Netherlands (C-60/90): This landmark case established the principle that a holding company can be regarded as a taxable person if it engages in management activities for consideration.
- C&D Foods Acquisition (C-502/17): This case discusses the deductibility of VAT and the conditions under which a holding company can claim input VAT.
- Finanzamt R (C-98/21): This case addresses the deduction of VAT related to shareholder contributions, providing further clarification on the treatment of management services provided by holding companies.
- Ryanair (C-249/17): This case examines the relationship between taxable persons and the criteria for determining economic activity, particularly relevant to holding companies.
- Marle Participations (C-320/17): This case clarifies the conditions under which a holding company can be considered to perform an economic activity for VAT purposes.
- Skripalle (C-63/96): This case highlights the principles surrounding the taxable amount and the conditions under which adjustments to VAT deductions might be necessary.
- Balkan and Sea Properties (C-621/10 and C-129/11): These cases further discuss the conditions under which tax evasion or avoidance may be assessed in relation to VAT deductions.
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