Netherlands: Pending CJEU case; VAT implications for Dutch holding companies

Netherlands: Pending CJEU case; VAT implications

A case concerning value added tax (VAT) deductions that is currently pending before the Court of Justice of the European Union (CJEU) could have implications for Dutch holding companies that are actively involved in the management of participations within a group.

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Active management of participations

The case—MVM (C 28/16)—was referred to the CJEU from a Hungarian court. The CJEU was asked to consider the ability of a “top” holding company—that is, one actively involved in the management of its participations—within an energy group, to recover VAT. The holding company did not charge a fee for its involvement in the participations. 

This situation, when a company that actively carries on a business is also involved in the management of its participations, has not been previously addressed by the CJEU.

Dutch rules

The judgment in this case could affects the core of the Dutch “holding resolution”—that is, the measure providing no limit on VAT deductions for a top holding company that is actively involved in the management of its participations within a group. 

Under current Dutch practice, a holding company that conducts a business with activities that are fully “VAT-able” and that, in addition, holds participations in which it is actively involved, often will not be subject to a VAT deduction limitation. This also applies if no fee is charged for this involvement. Such a group—whether or not operating under the Dutch “holding resolution” (no. VB91/347, 18 February 1991)—will usually be regarded as a VAT group. 

Furthermore, under certain special circumstances, it is possible to reach an agreement with the Dutch tax authorities that the active holding of participations is an extension of the “VAT-taxed” business of the holding company. Such situations arise, in particular, in respect of top holding companies that control a group, whereby the group companies perform activities that are subject to VAT.

For holding companies that qualify as “VAT-able persons” but that do not control a group (for example, a licensing company), the Dutch holding resolution provides, in principle, that the additional holding of shares does not affect the existing right to recover VAT. There has, however, been a slight shift in this interpretation due to the European case law in cases such as Securenta (C-437/06) and Larentia + Minerva (C-108/14 and C 109/14). 

At present, the Dutch tax authorities are increasingly demanding that such holding companies split the amount of VAT paid on purchases into two parts—a deductible part and a non-deductible part.

KPMG observation

Tax professionals in the Netherlands believe that the Dutch holding resolution may be long overdue for amendment, and the question at present is whether the outcome of this case referred to the CJEU from Hungary would affect any amendment of the Dutch holding resolution. Taxpayers and holding companies (whether established in the Netherlands or in other EU Member States) potentially affected by this development need to evaluation their situations and if appropriate file a notice of objection by making reference to the MVM case. In some instances, it may be advisable to wait for the CJEU judgment in this case.


Read a March 2016 report prepared by the KPMG member firm in the Netherlands: VAT deduction limitation for holding companies carrying on a business with substance?

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