(July 16, 2015)
On July 16, 2015 the European Court of Justice (CJEU) ruled in Joined Cases C‑108/14 and C‑109/14 Beteiligungsgesellschaft Larentia + Minerva mbH & Co. KG versus Finanzamt Nordenham (C‑108/14), and Finanzamt Hamburg-Mitte versus Marenave Schiffahrts AG (C‑109/14), (ECLI:EU:C:2015:496).
· Which calculation method is to be used to calculate a holding company’s (pro rata) input tax deduction in respect of input supplies connected with the procurement of capital for the purchase of shares in subsidiaries, if that holding company subsequently (as intended from the outset) provides various taxable services to those subsidiaries?
· Does the provision on the consolidation of several persons into a single taxable person in the second subparagraph of Article 4(4) of the Sixth Directive … preclude national legislation under which (first) only a legal person, but not a partnership, can be integrated into the undertaking of another taxable person (a so-called “Organträger” (controlling company)) and which (secondly) requires that this legal person “is integrated into the undertaking of the Organträger” in financial, economic and organisational terms (in the sense of a relationship of control and subordination)?
· If the previous question is answered in the affirmative: can a taxable person rely directly on the second subparagraph of Article 4(4) of the Sixth Directive …
The actions in the main proceedings and the questions referred for a preliminary ruling
Case C‑108/14
· Larentia + Minerva holds, as a limited partner, 98% of the shares in two subsidiaries constituted in the form of limited partnerships with a limited liability company as general partner (GmbH & Co. KG). It also provides those subsidiaries, as a ‘management holding company’, with administrative and business services for remuneration.
· In respect of those services subject to VAT, Larentia + Minerva deducted in full the input VAT paid in procuring capital from a third party which was used to fund the acquisition of its shareholdings in the subsidiaries and its services, in particular administrative and consultancy services.
· The Finanzamt Nordenham allowed that deduction only in part, since the mere holding of shares in the subsidiaries does not, according to that body, give a right to deduction. The amendment notice of 24 September 2007 relating to VAT payable for 2005 was contested by Larentia + Minerva before the Niedersächsisches Finanzgericht (Finance Court of Lower Saxony, Germany), which, by judgment of 12 May 2011, dismissed its action. Larentia + Minerva brought an appeal on a point of law before the Bundesfinanzhof (Federal Finance Court) against that judgment.
· The referring courts seeks clarification, first, as to the method for calculating the input VAT deduction where that deduction may be only partial and, secondly, as to the scope of Article 4(4) of the Sixth Directive relating to the ‘VAT group’, relied on by Larentia + Minerva. With regard to the latter point, that court questions in particular whether the national law is compatible with that provision where it excludes partnerships from the benefit of such a provision and requires a relationship of subordination of the subsidiaries in relation to the controlling company.
· In those circumstances, the Bundesfinanzhof decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:
(1) Which calculation method is to be used to calculate a holding company’s (pro rata) input tax deduction in respect of input supplies connected with the procurement of capital for the purchase of shares in subsidiaries, if that holding company subsequently (as intended from the outset) provides various taxable services to those subsidiaries?
(2) Does the provision on the consolidation of several persons into a single taxable person in the second subparagraph of Article 4(4) of the Sixth Directive … preclude national legislation under which (first) only a legal person, but not a partnership, can be integrated into the undertaking of another taxable person (a so-called “Organträger” (controlling company)) and which (secondly) requires that this legal person “is integrated into the undertaking of the Organträger” in financial, economic and organisational terms (in the sense of a relationship of control and subordination)?
(3) If the previous question is answered in the affirmative: can a taxable person rely directly on the second subparagraph of Article 4(4) of the Sixth Directive …
Case C‑109/14
· Marenave increased its capital in 2006 and the issue costs connected with that increase resulted in the payment of VAT amounting to EUR 373 347.57.
· In the same year that company, as a holding company, acquired shares in four ‘limited shipping partnerships’, in the business management of which it was involved for remuneration. From the VAT payable in respect of the revenue from those management activities, it deducted, inter alia, the entire sum of EUR 373 347.57 as input VAT.
· By decision of 15 January 2009, the Finanzamt Hamburg-Mitte did not allow the deduction corresponding to that amount. By judgment of 10 December 2012, the Finanzgericht Hamburg-Mitte (Finance Court, Hamburg-Mitte) upheld the action brought by Marenave against that decision. The Finanzamt Hamburg-Mitte lodged an appeal on a point of law with the Bundesfinanzhof against that judgment.
· The referring court decided to stay the proceedings and to refer the same questions as those set out in the present judgment to the Court for a preliminary ruling.
· By order of the President of the Court of 26 March 2014, Cases C‑108/14 and C‑109/14 were joined for the purposes of the written and oral procedure and the judgment.
The CJEU ruled as follows:
1. Article 17(2) and (5) 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, as amended by Council Directive 2006/69/EC of 24 July 2006, must be interpreted as meaning that:
– the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management and which, on that basis, carries out an economic activity must be regarded as belonging to its general expenditure and the value added tax paid on that expenditure must, in principle, be deducted in full, unless certain input economic transactions are exempt from value added tax under Sixth Directive 77/388, as amended by Directive 2006/69, in which case the right to deduct should have effect only in accordance with the procedures laid down in Article 17(5) of that directive;
– the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in the management only of some of those subsidiaries and which, with regard to the others, does not, by contrast, carry out an economic activity must be regarded as only partially belonging to its general expenditure, so that the value added tax paid on that expenditure may be deducted only in proportion to that which is inherent to the economic activity, according to the criteria for apportioning defined by the Member States, which when exercising that power, must have regard to the aims and broad logic of the Sixth Directive and, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to economic and to non-economic activity, which it is for the national courts to establish.
2. The second subparagraph of Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, must be interpreted as precluding national legislation which reserves the right to form a value added tax group, as provided for in those provisions, solely to entities with legal personality and linked to the controlling company of that group in a relationship of subordination, except where those two requirements constitute measures which are appropriate and necessary in order to achieve the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance, which it is for the referring court to determine.
3. Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, may not be considered to have direct effect allowing taxable persons to claim the benefit thereof against their Member State in the event that that State’s legislation is not compatible with that provision and cannot be interpreted in a way compatible with it.
For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.
Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).
Copyright – internationaltaxplaza.info
Stay informed: Subscribe to International Tax Plaza’s Newsletter!
and
Follow International Tax Plaza on Twitter (@IntTaxPlaza)
