In MVM Magyar Villamos Művek Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság (Case C-28/16) (12 January 2017), the CJEU found that the free supply of management services by a holding company to its subsidiaries is not an economic activity giving rise to a right to deduct input tax.
MVM leased power plants and fibre optic networks. It was also responsible for the strategic management of the group and supplied legal, business management and public relations services to other group companies. It did not charge for those services but it had deducted the VAT incurred in supplying them.
The Hungarian tax authorities refused the deduction but MVM claimed that the relevant VAT had been incurred on general expenses relating to its taxable activity, since it was a taxable person and did not make any exempt supplies.
The issue was therefore whether the involvement of a holding company in the management of its subsidiaries, without any charge covering the cost of the supplies (nor the corresponding VAT), can be regarded as an ‘economic activity’ giving rise to a right of deduction.
The CJEU observed (referring to Larentia + Minerva and Marenave Schiffahrt, (Case C‑108/14 and Case C‑109/14)) that for VAT to be deductible, the relevant input transactions must have a direct and immediate link with taxable supplies. It added that the mere acquisition and holding of shares in a company are not economic activities, unless the holding company is involved in the management of its subsidiaries and charges a fee for its services.
MVM had not received any remuneration from its subsidiaries in exchange for its centralised management of the activities of the group, so that its involvement in the management of its subsidiaries could not be regarded as an ‘economic activity’.
Why it matters: The CJEU confirmed that a holding company’s involvement in the management of its subsidiaries will only be an economic activity if it charges for its services to them. It also made the point that the fact that MVM carried on a taxable activity (the leasing of power plants and fibre optic networks) did not help, in the absence of a direct link between the VAT at issue and those supplies.
In MVM Magyar Villamos Művek Zrt. v Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság (Case C-28/16) (12 January 2017), the CJEU found that the free supply of management services by a holding company to its subsidiaries is not an economic activity giving rise to a right to deduct input tax.
MVM leased power plants and fibre optic networks. It was also responsible for the strategic management of the group and supplied legal, business management and public relations services to other group companies. It did not charge for those services but it had deducted the VAT incurred in supplying them.
The Hungarian tax authorities refused the deduction but MVM claimed that the relevant VAT had been incurred on general expenses relating to its taxable activity, since it was a taxable person and did not make any exempt supplies.
The issue was therefore whether the involvement of a holding company in the management of its subsidiaries, without any charge covering the cost of the supplies (nor the corresponding VAT), can be regarded as an ‘economic activity’ giving rise to a right of deduction.
The CJEU observed (referring to Larentia + Minerva and Marenave Schiffahrt, (Case C‑108/14 and Case C‑109/14)) that for VAT to be deductible, the relevant input transactions must have a direct and immediate link with taxable supplies. It added that the mere acquisition and holding of shares in a company are not economic activities, unless the holding company is involved in the management of its subsidiaries and charges a fee for its services.
MVM had not received any remuneration from its subsidiaries in exchange for its centralised management of the activities of the group, so that its involvement in the management of its subsidiaries could not be regarded as an ‘economic activity’.
Why it matters: The CJEU confirmed that a holding company’s involvement in the management of its subsidiaries will only be an economic activity if it charges for its services to them. It also made the point that the fact that MVM carried on a taxable activity (the leasing of power plants and fibre optic networks) did not help, in the absence of a direct link between the VAT at issue and those supplies.
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