Michaela Merz

Larentia + Minerva: CJEU issues its decision on the VAT deduction right of active holding companies and VAT grouping rules

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Photo_RGB_PC_48164.jpgThe Court of Justice of the European Union (CJEU) released yesterday its decision on the joint cases, Beteiligungsgesellschaft Larentia+Minerva GmbH & Co. KG (C-108/14) (Larentia+Minerva) and Marenave Schiffahrts AG (C-109/14) (Marenave).

The questions referred to the CJEU concern two significant issues:

  • The input VAT recovery of holding companies involved in the management of their subsidiaries
  • The VAT grouping rules and the restrictions imposed by national law.

We recall that the Swiss VAT legislation considers the acquisition, holding and disposal of shares an economic activity and admits the VAT deduction right of holding companies irrespective of their involvement (passive or active) in the management of their subsidiaries.

On the contrary, based on the EU VAT principles, passive holding companies limiting their activities to the acquisition, holding and disposal of shares neither have the status of a taxable person nor the right to deduct any input VAT. A holding company can qualify as a taxable person only if it is involved in the management of its subsidiaries by providing taxable services to the latter (active holding company). In this case, the VAT deduction right may be admitted, however, is under scrutiny in many EU Member States.


Larentia+Minerva was the owner of 98% of the shares in two limited partnerships each one operating a vessel. Acting as a “management” holding company, Larentia+Minerva provided taxable supplies (i.e. administrative and consultancy services) for consideration to these subsidiaries. The holding company sought to recover the input VAT incurred in the frame of raising capital from a third party to fund the acquisition of the shares in its subsidiaries and the services provided to the latter.

Following a similar factual pattern, Marenave incurred input VAT on costs relating to raising capital through the issue of new shares. The capital raised was used to fund the acquisition of shares in four limited shipping partnerships to which Marenave provided management services for remuneration.

In the case of Larentia+Minerva, the German tax authorities only permitted the partial deduction of the input VAT considering that the majority of the costs connected with the acquisition of shares in the subsidiaries should be attributed to a non-economic activity, namely the holding of shares in subsidiaries for which the input VAT deduction is not allowed. In respect of Marenave, the German tax authorities denied the right to deduct the input VAT incurred for the issue of shares on grounds of lack of involvement of the holding company in the management of its subsidiaries.

Questions referred to the CJEU

1.   In its first question, the referring court asked which calculation method is to be used to calculate a holding company’s (pro rata) input VAT deduction in respect of costs related to the procurement of capital for the acquisition of shares in subsidiaries, considering that this holding company provides taxable supplies to those subsidiaries.

2.   By its second question, the referring court asked whether the restriction of VAT grouping to corporate entities and the condition of a relationship of control and subordination between the members of the group imposed by German law are compatible with the concept of VAT grouping developed by the EU VAT Directive.

3.   Finally, the referring court asked whether the VAT grouping provision in the EU VAT Directive can have direct effect for taxable persons.

Decision of the CJEU

In respect of the first question on the VAT deduction right of holding companies, the CJEU drew a distinction based on whether the holding is involved in the management of all (active holding) or only some (mixed holding) of its subsidiaries through the provision of taxable services to them:

  • In the first case, the CJEU has ruled that the input VAT costs incurred by a holding company in connection with acquisition of shares in subsidiaries form part of the general costs and are fully deductible. In this regard, the input VAT should not be apportioned between the economic and non-economic activities of the holding company.
  • By contrast, the CJEU concluded that if the holding company incurs costs in relation to the acquisition of shares in subsidiaries but has involved itself in the management of only some of those subsidiaries can only partially deduct the input VAT actually to be attributed to its economic activity. The EU Member States must provide for a method of apportionment to calculate the part of input VAT actually to be attributed to the economic and to non-economic activity of the holding company.

In addition, the CJEU found that the VAT grouping conditions implemented in Germany limiting the participation to a VAT group to corporate entities and requiring a relationship of control and subordination between the members of the group are too restrictive and go beyond the requirements set by the EU VAT directive. However, answering the third question, the CJEU pointed out that the provision of the EU VAT Directive on VAT grouping cannot have direct effect allowing taxable persons to claim a benefit thereof.

What does this mean for you?

With this judgment CJEU has shed new light on the VAT deduction right of holding companies, since:

  • The CJEU confirmed that active holding companies should have the right to fully reclaim the input costs incurred in relation to the acquisition of shares in those subsidiaries. An apportionment of the input VAT is only required if the holding company renders VAT exempt supplies to its subsidiaries.
  • On the other hand, mixed holding companies may now face important risks regarding the determination of the calculation method for the deduction of their input VAT costs as the apportionment between economic and non-economic activities will be required. In addition, it cannot be excluded that tax authorities may consider re-assessing the input VAT previously deducted by these entities (up to the time limits applicable).

In light of this decision, various EU Member States are likely to revise their current practice on the VAT recovery of holding companies and the VAT grouping requirements imposed in their national legislation.


  • Businesses with holding companies based in the EU should carefully review their corporate organization and monitor closely the changes that may be adopted in the various EU Member States.
  • Active holding companies having been prevented by tax authorities in the EU to deduct in full their input VAT costs in the past should assess the possibility of launching proceedings to reclaim this input VAT in accordance with the conditions for such proceeding imposed by national law.
  • Mixed holding companies should carefully analyze the impact of this decision, especially in respect of their past entitlement to deduct input VAT. In this case, it is crucial to evaluate the possible solutions to mitigate any risks especially for the past and to determine the method for the apportionment of the input VAT deduction of the holding company for the future.

For more information about the specific consequences for your situation, please contact with your PwC ITX advisor.

Find out more

How may the CJEU’s judgment impact your business? Will you be in a position to benefit and need to protect your position on time limits? How might your tax authority respond to the decision?

Please join us on our live webinar when a panel of indirect tax experts will provide their insights into the judgement and you will have the opportunity to ask the panel questions during the live webinar. A more detailed analysis with our comments and recommended actions will follow after the webcast session.
Date: 20 July 2015
Time: 16:00 BST, 10:oo Eastern (New York)

To Access the Webcast:
Click on the LINK to open the webcast registration page.

You may log in starting 15 minutes before the webcast begins, but it will be also recorded for later viewing. Recording can be accessed under the same link or you can find it on pwc.com. After filling out the registration page, the webcast will open in Internet Explorer to enable you to view the presentation on your desktop and hear audio through your PC speakers. If you are watching the webcast in a group setting, please note that you will need to connect external speakers to the PC that is projecting the webcast to the group. You should *not* view the webcast via computer AND then listen via phone as there will be a delay in the sound.

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