On the same date, the decision of 18 February 1991, No VB91/347, (‘holding resolution 1991’) and the decision of 3 August 2004, Nr. CPP2004/1709M (‘decision on sale of shares 2004’) will be repealed. As a result, a new framework is provided for a VAT position of holding companies and transactions involving shares for VAT. This may change the VAT position of a holding company or any other company involved in e.g., re-structuring or transactions in shares.
Background
A mere holding of shares is not an entrepreneurial activity for VAT purposes. Pure holding companies (i.e., not performing any activities subject to VAT but only holding the shares in other companies) are not considered as VAT entrepreneurs having right to deduct input VAT. Consequently, an entity holding shares in other companies cannot generally claim the VAT payable on its expenses (including purchases subject to the reverse charge) because the pure holding of shares is considered a non-economic activity. Therefore, input VAT payable on costs for the acquisition, holding or sale of shares is generally not deductible.
VAT deduction may however be possible if next to holding of shares activities are performed that would give a holding the status of a VAT entrepreneur. To be considered a VAT entrepreneur and to be granted a right to a VAT refund, certain criteria have to be met. A holding company that is actively involved with, and intervenes in, the management of subsidiaries in the group is considered a VAT entrepreneur (i.e. an ‘active’ holding). The holding company must receive appropriate remuneration (management fee) for these activities. A symbolic payment does not suffice.
The ‘holding resolution 1991’ that will be repealed from 1 July 2025, provides guidance on how holding activities should be treated for VAT purposes. However, it is not in all aspects in line with the latest EU case law developments. Furthermore, there have been new case law developments in the field of VAT grouping. The new decisions provide a new framework. The article will provide a high-level overview of the changes included in these decisions and their impact on businesses.
Changes for activities of holdings
Two decisions providing guidance until 1 July 2025, are repealed:
- The decision on the sale of shares 2004, guiding the VAT treatment of the sale of shares. The decision provides a basis for the deduction of input VAT paid on costs related to dealings with shares, e.g., a sale of shares. The new decision replaces this guidance and changes the interpretation of VAT deduction on costs made for transactions in shares, e.g. in the case of the sale of shares.
- The holding resolution 1991, guiding the VAT treatment of holding companies and holding of shares in general. The repealed holding resolution could be interpreted as giving ‘active’ holding companies a right to apply full VAT recovery despite also holding shares ‘passively’. This interpretation has caused controversy and litigation because is not in line with the latest EU case law. The Dutch tax authorities no longer accept reliance on this interpretation.
Clarification of VAT entrepreneurship
The pure holding of shares is passive for VAT purposes and is not considered to be an economic activity giving a right to deduct input VAT.
Transactions concerning shares (such as acquiring, holding, issuing and selling), however, fall within the scope of VAT if they take place in the capacity of a VAT entrepreneur. Therefore, to be able to deduct input VAT, the holding should perform economic activities that would give it the status of an entrepreneur. The new decision provides that at least the following activities fall within the scope of VAT.
Interference in the management of the company
The entrepreneur directly or indirectly should interfere in the management of the company in which shares are held. Interference implies providing services for remuneration. The new decision provides that ‘interference’ in this context does not require that the shares constitute a majority stake in the company.
Shares as a direct, permanent and necessary extension of the economic activity of the entrepreneur
The entrepreneur's shares constitute a direct, permanent and necessary extension of his economic activity. Thus, at least the following transactions with shares take place within the scope of VAT
- (re)structuring;
- the purpose of a sale and transfer of shares is to allocate the proceeds directly to the taxable economic activity of the entrepreneur concerned;
- the entrepreneur seeks to expand or modify its operational activities;
- the act serves to cover its obligations relating to its economic activity.
VAT deduction
If transactions concerning shares fall within the scope of VAT, then the deduction of input VAT depends on the purpose and use of the costs made. If the costs are directly made for economic activities subject to VAT, then the VAT is fully deductible. If the costs are directly made for VAT-exempt activities, then the VAT is fully nondeductible. If the costs can be considered as overheads, i.e. general costs that cannot be directly linked to either economic or non-economic activities, then the VAT payable (through the reverse charge) is deductible according to the pro-rata.
With regard to the deductibility of VAT on costs made for selling shares, then the new decision states that these costs should in principle qualify as direct costs, attributable to the VAT-exempt sale of shares, as a result of which, in principle, there would be no right of deduction.
The sale of shares' decision of 2004 to be repealed from 1 July 2025, states that these selling costs qualify as general costs, and may therefore be eligible for (partial) deduction if the seller is a VAT entrepreneur.
If a holding company acts as a VAT entrepreneur, VAT on share-selling expenses is consequently less likely to be deductible from 1 July 2025, unless the buyer of the shares resides outside the EU.
Holding to be included in a VAT group
A ‘pure’ holding company that performs a steering and policy-making function within the group is allowed to be included in the VAT group. This approval is taken from the ‘holding resolution 1991’, which will be repealed with the entry into force of the ‘new’ decision.
What is new: the inclusion of such ‘management holding’ in a VAT group should be requested from the Dutch tax authorities.
Furthermore, intermediate holding companies are also allowed to be included in a VAT group
Conclusion
The new decisions clarify the approach of the Dutch tax authorities to the dealings with shares and holding companies. In some aspects, the new guidelines applicable from 1 July 2025, provide a more restrictive approach to VAT deduction on costs related to transactions of shares than the current guidelines applicable until 1 July 2025. A main example is the sale of ‘actively’ held shares.
Impact on business
Businesses should review the impact of the new guidelines, especially on VAT deduction of costs of restructuring; holding, acquiring or selling of shares; and VAT grouping. ‘Management holdings’ need to review their VAT position and need to request to be included in a VAT group.
We recommend that you review your VAT position to ensure that VAT is applied correctly in dealings with shares and VAT grouping. In case of reorganizations, the VAT consequences should be analyzed well in advance to ensure that VAT aspects are taken into account and VAT consequences of restructuring activities optimized.
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