When is a holding company subject to VAT?

The tax ruling illustrated

A pure holding corporation that only holds shares and receives dividends will not be considered to be carrying out an economic activity within the meaning of VAT and will not be considered a VAT payer. In such a case, after all, it is a 'passive' holding company whose activity falls outside the scope of VAT according to established case law of the European Court of Justice.

Nevertheless, the Court of Justice has clarified in several judgments that a holding company can be a VAT payer if it directly or indirectly interferes in the management of the company in which it holds a participation. In this way, administrative, accounting, financial, commercial, IT and technical services can fall under the notion of 'interference'. Generally speaking, according to the Court, all actions can fall under this concept when they are performed for the affiliated company against remuneration. In such a case, one can speak of an 'active' holding company that is liable for VAT.

It follows that, for example, the provision of management services for, as well as the mere renting out of immovable property to, the associated company could qualify as an 'interference', insofar as this is done in return for remuneration and insofar as other conditions prescribed by the Court are met.

It is not unimportant to note here that this will result, among other things, in internal transactions between the holding company and the company in which it holds a participation. This can however be remedied, among other things, by forming a VAT unit with this company. Hereby, the companies remain legally independent, but will be regarded as a single taxpayer insofar as there is a sufficient financial, organisational and economic connection between them. Consequently, the transactions carried out between them will fall outside the scope of VAT. Transactions carried out by third parties will be regarded as having been performed for the VAT unit.

Vice versa, the transactions made to third parties will be deemed to have been carried out by the VAT unit. We will be pleased to assist you in reviewing the VAT liability of your holding company, as well as the possibility of forming a VAT unit of your holding company and its operating company(ies).

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