In more detail
New VAT policy on input VAT Deduction in share transactions
Generally, a holding company that merely holds and sells shares does not qualify as a VAT entrepreneur. Transactions involving shares (such as acquiring, holding, issuing, and selling) fall within the scope of VAT if they take place by a holding in the capacity of an entrepreneur.
Under the new policy, holding or selling shares falls within the scope of VAT in the following three scenarios:
- "Interference" by the holding company in the management of its subsidiary in exchange for remuneration. While the old policy required a majority interest, this requirement has been removed in the new Decree.
- Shares in subsidiary are a necessary "extension" of the economic activity of the holding company. Specific examples are now included in the new Decree.
- The holding company trades in shares and other securities in the course of its business activities.
Other topics that are addressed in the new policy are the allocation of costs for transactions involving shares. This is often a matter of contention.
Another interesting topic addressed is the impact of the sale of shares on the pro rata right to deduct input VAT. In the new decree, it is stipulated that if the sale of shares qualifies as an 'incidental financial activity', the resulting proceeds may be excluded from the calculation.
New VAT Grouping Decree for Holding Companies
The new Decree contains further instructions and clarifications for the application of VAT grouping and addresses the position of holding companies in this respect.
Generally, a holding company – with no other business activities than holding shares and related shareholder activities – cannot be part of a VAT group, as such holding company does not qualify as a VAT entrepreneur. In accordance with the existing policy, which is upheld in the new Decree, a holding company that performs management and policy-setting activities for its subsidiary can be part of a VAT group. This policy will be maintained and will now also be extended to intermediate holding companies.
Furthermore, the Decree further elaborates on how to interpret the conditions for VAT grouping (i.e., financial, organizational and economic interdependence).
Recommended actions
In conclusion, the new VAT policy has the potential to have a significant impact on the current VAT position of holding companies. It may also impact the overall costs of share transactions. We therefore advise to make an assessment of what the revised VAT policy will mean for your existing VAT position.. Our experts at Baker McKenzie are available to advise you on this matter.
