(March 26, 2015) 

On March 26, 2015 the opinion of Advocate General Mengozzi in Joined Cases C-108/14 (Beteiligungsgesellschaft Larentia + Minerva mbH & Co. KG versus Finanzamt Nordenham) and C-109/14 (Finanzamt Hamburg-Mitte versus Marenave Schiffahrts AG) (ECLI:EU:C:2015:212) was published on the website of the European Court of Justice (CJEU).

The following questions were referred to the CJEU for a preliminary ruling: 

1.     Which calculation method is to be used to calculate a holding company’s (pro rata) input [VAT] deduction in respect of input supplies connected with the procurement of capital for the purchase of shares in subsidiary companies, if the holding company subsequently (as intended from the outset) provides various taxable services to those companies?

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 (firstly) 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 organizational 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] ...?

Main proceedings, the referred questions and the proceedings before the Court

·       In the first case, 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) which each operate a vessel. It also provides those subsidiaries, as a ‘management holding company’, with administrative and business services for remuneration.

·       In respect of these services subject to VAT, Larentia + Minerva deducted in full the input VAT paid in raising from a third party capital which was used to fund the acquisition of its shareholdings in the subsidiaries and its services, in particular administrative and consultancy services, provided to those subsidiaries for remuneration.

·       The Finanzamt Nordenham allowed that deduction only very partially, in an amount of 22%, as the majority of the costs connected with the acquisition of shareholdings in the subsidiaries were attributed to the non-economic area of the holding company’s activity, namely holding shares in subsidiaries, for which there is no input tax deduction. The 2005 VAT amendment notice of 24 September 2007 was challenged by Larentia + Minerva before the Niedersächsisches Finanzgericht (Finance Court of Lower Saxony), which dismissed the claim. Larentia + Minerva thereupon lodged an appeal on a point of law with the Bundesfinanzhof.

·       In the second case, Marenave increased its capital in 2006 and the costs for the issue of shares in connection with that increase gave rise to a VAT payment of EUR 373 347.57.

·       In the same year that company, as a holding company, acquired shares in four ‘limited shipping partnerships’, which are 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 in 2006, it deducted, inter alia, the entire sum of EUR 373 347.57 as input VAT.

·       By a decision of 15 January 2009, the Finanzamt Hamburg-Mitte refused to allow the deduction in respect of that sum, given the lack of actual involvement of the holding company in the management of the subsidiaries. However, the Finanzgericht Hamburg-Mitte (Finance Court, Hamburg-Centre) upheld the action brought against that decision and allowed in full the input tax deduction claimed by Marenave. The Finanzamt Hamburg-Mitte lodged an appeal on a point of law with the Bundesfinanzhof against the judgment of the Finanzgericht Hamburg-Mitte.

·       In the two cases before it, the referring court considers that the services purchased by the holding companies are used for both economic activities and non-economic activities and that deduction of input tax can be claimed only to the extent to which the expenses are to be attributed to the economic activity of the holding companies. Consequently, the referring court takes the view that there is no entitlement to full deduction but asks whether the principles identified by the Court in Cibo Participations (C‑16/00, EU:C:2001:495) do not preclude such a finding. Nevertheless, the referring court does not ask the Court directly about this subject. Its first question simply seeks clarification about the method for calculating the input VAT deduction which objectively reflects the portion of the input expenditure actually to be attributed to economic activities and to non-economic activities in the case of the holding companies. Second, if the question of input VAT deduction by the holding companies were to be resolved by taking into consideration the subsidiaries’ taxable output transactions with third parties, the referring court enquires about the scope of the second subparagraph of Article 4(4) of the Sixth Directive relating to VAT groups, invoked for the first time in the appeal proceedings on a point of law by Larentia + Minerva and by Marenave. In this regard, the Bundesfinanzhof asks whether national law is compatible with that provision when, among other things, it precludes such a mechanism for partnerships and whether, if that is not the case, the second subparagraph of Article 4(4) of the Sixth Directive can be relied on directly by taxable persons.

·       In those circumstances, the Bundesfinanzhof decided to stay the proceedings and, in each of these cases, to refer the following questions for a preliminary ruling: 

1.      Which calculation method is to be used to calculate a holding company’s (pro rata) input [VAT] deduction in respect of input supplies connected with the procurement of capital for the purchase of shares in subsidiary companies, if the holding company subsequently (as intended from the outset) provides various taxable services to those companies?

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 (firstly) 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] ...?

·       Written observations on those questions were submitted by Larentia + Minerva, Marenave, the German Government, Ireland, the Austrian and United Kingdom Governments and the European Commission. With the exception of the Austrian Government, which was not represented in the oral procedure, those interested parties and the Polish Government presented oral argument at the hearing on 7 January 2015.

In the opinion the Advocate proposes that the questions referred by the Bundesfinanzhof be answered as follows: 

1.     Expenditure connected with capital transactions incurred by a holding company which involves itself directly or indirectly in the management of its subsidiaries has a direct and immediate link with that holding company’s economic activity as a whole. Input value added tax on that expenditure should not therefore be apportioned between the economic and non-economic activities of the holding company. If the holding company effects transactions which are subject to value added tax and transactions which are exempt, the proportion method provided for in Article 17(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 will be used to calculate the right to deduct input value added tax.

2.     The second subparagraph of Article 4(4) of Sixth Directive 77/388 precludes a Member State, in the exercise of the option available under that provision, from making the formation of a VAT group subject to the condition that all the members of that group must have legal personality, unless that condition is justified by the prevention of abusive practices or of tax evasion or avoidance, having due regard to EU law, in particular the principle of fiscal neutrality, this being a matter which must be determined by the referring court.

National legislation under which close financial, economic and organisational links, within the meaning of the second subparagraph of Article 4(4) of Sixth Directive 77/388, can exist only where there is a relationship of control and subordination between the members of the VAT group is liable to be compatible with that article, on condition that it is necessary and proportionate to the pursuit of the objectives of preventing abusive practices and tax evasion or avoidance in compliance with EU law, in particular the principle of fiscal neutrality, this being a matter which must be determined by the referring court.

3.     A taxable person cannot rely directly on the second subparagraph of Article 4(4) of Sixth Directive 77/388. It is, however, for the referring court, as far as possible, to interpret its national legislation in conformity with that provision of the Sixth Directive.

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