Holding, Financing, Deductions and VAT Alexis Tsielepis Managing - PowerPoint PPT Presentation

Direct or indirect involvement in the management  Floridienne and Berginvest, ECJ, Case C-142/99 [2000]  Taking the view that the interest on the loans made by F&B to their subsidiaries relates nevertheless to a specific professional activity of a financial nature, the authorities reinstated it in the denominator of the fraction used to calculate the general deductible proportion.  By contrast, as regards the dividends, only those paid by the subsidiaries which had actually received management assistance were included in the income reinstated in the denominator of that fraction. 27

Direct or indirect involvement in the management  Floridienne and Berginvest, ECJ, Case C-142/99 [2000]  ECJ : the direct or indirect involvement in the management of the subsidiaries must be regarded as an economic activity, in so far as it entails carrying out transactions which are subject to VAT, such as the supply by F&B of administrative, accounting and information technology services to their subsidiaries.  the receipt of dividends is not the consideration for any economic activity and it does not fall within the scope of VAT - dividends resulting from shareholding fall outside the deduction entitlement 28

Direct or indirect involvement in the management  Floridienne and Berginvest, ECJ, Case C-142/99 [2000]  ECJ : Certain features of dividends account, in particular, for their exclusion from VAT: 1) First, the existence of distributable profits is generally a prerequisite of paying a dividend and that payment is thus dependent on the company's year-end results. 2) Second, the proportions in which the dividend is distributed are determined by reference to the type of shares held, in particular by reference to classes of shares, and not by reference to the identity of the owner of a particular shareholding. 3) Lastly, dividends represent, by their very nature, the return on investment in a company and are merely the result of ownership of that property 29

Direct or indirect involvement in the management  Floridienne and Berginvest, ECJ, Case C-142/99 [2000]  ECJ : with regards to the loans, F&B merely re-invested the dividends they had received from their subsidiaries in the form of loans, to some of them, without any connection to the administration services supplied.  where a holding company merely reinvests dividends received from its subsidiaries and outside the scope of VAT in loans to those subsidiaries, that in no way constitutes a taxable activity. The interest on such loans must, on the contrary, be considered merely as the result of ownership of the asset and is therefore outside the system of deductions. 30

Direct or indirect involvement in the management  Welthgrove, ECJ, Case C-102/00 [2001]  Welthgrove is an intermediate holding company which holds shares in a number of companies established in the European Union manufacturing plastic packaging.  Welthgrove employed no staff. The members of its board of directors engaged in the active guidance of its subsidiaries, but Welthgrove charged no remuneration for those activities, although it received dividends from its subsidiaries.  Welthgrove deducted input VAT on supplies it received, with the Dutch administration believing it had no such right as it was not a taxable person 31

Direct or indirect involvement in the management  Welthgrove, ECJ, Case C-102/00  Welthgrove’s position was that it was involved in the management of its subsidiaries, within the terms of the judgment of Polysar , and therefore had a right to deduct input VAT.  ECJ : The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property  the mere involvement of a holding company in the management of its subsidiaries without carrying out transactions subject to VAT cannot be regarded as an economic activity 32

Shares vs Bonds The case of Harnas & Helm

Shares vs Bonds  Harnas & Helm , ECJ, Case C-80/95 [1997]  1/1/87-1/3/91: Harnas, established in Amsterdam, held shares and bonds issued by bodies and undertakings in the United States of America and Canada. During this period, Harnas received dividends or interest on those shares and bonds.  1984-16/4/87: Harnas made a loan to the undertaking All American Metals.  1/7/1992: Harnas made a loan to another borrower, Opticast International Corporation. 34

Shares vs Bonds  Harnas & Helm , ECJ, Case C-80/95 [1997]  The Dutch tax inspector, considering that, as from 17 April 1987, Harnas could not be regarded as a trader, issued a reassessment notice to recover the amount of the VAT which Harnas had deducted in respect of the period between 17 April 1987 and 1 March 1991 inclusive.  The Dutch VAT administration believed that during this period, Harnas did not exercise any economic activity. 35

Shares vs Bonds  Harnas & Helm , ECJ, Case C-80/95 [1997]  ECJ : the Court cited its case-law that had specified that:  the mere acquisition and holding of shares in a company is not to be regarded as an economic activity, conferring on the holder the status of a taxable person (Polysar).  the mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property (Sofitam). 36

Shares vs Bonds  Harnas & Helm , ECJ, Case C-80/95 [1997]  ECJ : the activity of a bondholder may be defined as a form of investment which does not extend further than straightforward asset management.  The income from the bonds derives from the mere fact of holding them, which entitles the holder to payments of interest.  Such interest cannot, therefore, be regarded as a return on an economic activity or transaction carried out by the bondholder, since it derives from the mere ownership of the bonds. 37

Shares vs Bonds  Harnas & Helm , ECJ, Case C-80/95 [1997]  ECJ : There is thus no reason to treat bondholding differently from shareholding.  As such, the mere acquisition of ownership in and the holding of bonds, activities which are not subservient to any other business activity, and the receipt of income therefrom are not to be regarded as economic activities conferring on the person concerned the status of a taxable person. 38

Economic vs Non-Economic Activity The cases of Larentia + Minerva and Marle Participation

Economic vs non-economic activity  Larentia + Minerva, ECJ, Case C-108/14 [2015]  Larentia + Minerva holds, as a limited partner, 98% of the shares in two subsidiaries and also provides those subsidiaries, as a ‘management holding company’, with administrative and business services for remuneration.  In respect of those services subject to VAT, Larentia + Minerva deducted in full the input VAT paid in procuring capital from a third party which was used to fund the acquisition of its shareholdings in the subsidiaries and its services, in particular administrative and consultancy services  The Finanzamt Nordenham allowed that deduction only in part, since the mere holding of shares in the subsidiaries does not, according to that body, give a right to deduction. 40

Economic vs non-economic activity  Larentia + Minerva, ECJ, Case C-108/14 [2015]  ECJ : The court’s thinking was as follows: – The supply of management services for consideration to subsidiaries constitutes an economic activity – For VAT to be deductible, the input transactions must have a direct and immediate link with the output transactions giving rise to a right of deduction, or the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies 41

Economic vs non-economic activity  Larentia + Minerva, ECJ, Case C-108/14 [2015]  ECJ : ( continuation )  the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management and which, on that basis, carries out an economic activity, must be regarded as attributed to that company’s economic activity and the VAT paid on that expenditure gives rise to the right to full deduction.  in the event that the shareholdings resulting from the capital transactions carried out by the holding companies were attributed in part to other subsidiaries in the management of which those holding companies were not involved that the VAT paid on the costs of those operations could be deducted only in part. 42

Economic vs non-economic activity  Marle Participations, ECJ, Case C-320/17 [2018]  Marle Participations is the holding company in the Marle Group. It held shares in subsidiary companies and also leased a building to some of them.  It conducted a restructuring of its holding operations making sales and acquisitions of subsidiaries. It deducted the VAT charged on various expenses to do with the restructuring in full.  The French Tax Authorities denied the VAT deduction saying it related to a capital transaction which fell outside the scope of the right of deduction.  The French Court referred to the ECJ whether the leasing to the subsidiary could constitute ‘involvement in its management’ 43

Economic vs non-economic activity  Marle Participations, ECJ, Case C-320/17 [2018]  ECJ:  The leasing of a building to a subsidiary is considered involvement in the management of the subsidiary if the rent is subject to VAT (not exempt). Therefore to the extent that a subsidiary was leasing with VAT from the parent, the VAT on restructuring expenses could be deducted, based on Larentia + Minerva principal.  The ECJ went further and clarified that the term ‘involvement of a holding company in the management of its subsidiary’ must accordingly, be understood as covering all transactions constituting an economic activity, within the meaning of the VAT Directive, performed by the holding company for the benefit of the subsidiary. 44

Economic vs non-economic activity  Marle Participations, ECJ, Case C-320/17 [2018]  ECJ:  The ECJ also clarified that the deduction should be granted regardless of the amount of the rental income, i.e. even if there is a disparity between the benefit of the VAT deduction and the VAT chargeable on the rental income amount.  It justified this decision based on the fact that the right to deduct may not be linked to the results of the economic activity. 45

Holding Companies & VAT Interpretive Circular 222 09.01.2018

Circular 222  On 09.01.2018, the DoT issued Interpretive Circular 222 entitled Holding Companies (Εταιρίες Συμμετοχών)  The Circular repeats basic principles arising from Polysar and subsequent cases on Holding companies 47

Circular 222  However, the Circular states in paragraph 5: «A holding company that controls the equity of some other legal persons, may influence their decisions e.g. with regards to investments made by those persons in which the majority of shares it owns. In this case, and if the facts substantiate it, the dividends from the shares may be regarded as consideration for the management services rendered.» Chelco VAT considers the above paragraph incorrect given that based on jurisprudence of the ECJ, dividends can never in itself constitute consideration for a supply of services. 48

Circular 222 Following various representations, the Commissioner issued Interpretive Circular 225 on 31.01.2018, that states: «With regards to the 5 th paragraph of IC 222, we clarify that this relates to a holding company that exercises investment economic activity connected to the holding of shares in other companies, in which case this relates to a taxable person, and exclusively in relation to services that form part of the exemption of paragraph 3(e) of Table B of the 7 th Schedule [7 ο Sch, Table Β 3(ε) = VAT exemption regarding transactions in shares]»  comment: instead of correcting the mistake of IC 222 and deleting paragraph 5, now the DoT considers that dividends constitute exempt income and should influence the pro-rata calculation? 49

Circular 222 The Department of Taxation should remove / delete: - paragraph 5 of Circular 222 - paragraph (b) of Circular 225 The wording of the above mentioned paragraphs is not in accordance with jurisprudence of the ECJ of the last 35 years and have no legal grounds either based on the Cyprus VAT legislation or on the VAT Directive 50

Deductions

Deductions  A right of deduction arises at the time the deductible tax becomes chargeable [ 167 ] 52

Deductions: Non economic activities  Securenta C-437/06 [2008]  ECJ : Non-economic activities do not fall within the scope of the VAT Directive  ECJ : Thus, to the extent that input VAT relates to expenditure incurred by a taxpayer connected with non-economic activities, it cannot give rise to a right to deduct.  So must first apportion input VAT between economic and non- economic activities [= pre pro-rata] 53

Deductions: Non economic activities  Securenta, ECJ, Case C-437/06 [2008]  The ECJ did not provide any details on how input VAT on general expenses could be apportioned between economic and non-economic activities – “ it is for the Member States to establish methods and criteria appropriate to that aim and consistent with the principles underlying the common system of VAT .”  It stated that Member States are required to adopt measures which must comply with the principle of fiscal neutrality on which the common system of VAT is based. 54

Deductions: Economic activities  Input tax is deductible when it relates to output transactions that provide a right of deduction. Such output transactions can be:  Taxable transactions (domestic, I/C, or o/s of EU) [ 168, 169(a) ]  Certain exempt insurance and financial transactions where the recipient is outside of the EU thus providing right of deduction [ 169(c) ]  ‘Zero rated’ transactions [ 168, 169(b) ] 55

Deductions: Economic activities  Input tax is not deductible when it relates to output transactions that are exempt i.e. do not provide a right of deduction  Input tax is not deductible when it does not relate to expenditure which is not strictly business expenditure (e.g. luxuries, amusements, entertainment) [ 176 ] 56

Deductions: Economic Activities Proportional Deduction  Input tax is deductible where the cost forms part of the taxable person’s general costs, which in turn form a component of the price of the goods or services supplied  However, where goods and services are used for taxable and non- taxable outputs, only such proportion of the VAT attributable to the former is deductible [ 173 ] 57

Deductions: Economic Activities Proportional Deduction  The deductible proportion, shall be made up of the following fraction [ 174 ]:  as numerator, the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible  as denominator, the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator, and to transactions in respect of which VAT is not deductible  MS are allowed to use another method for determining the deductible amount in order to reach more precise results in calculating the deductible proportion [ 173 ] 58

Deductions: Economic activities  Midland Bank C-98/98 [2000]  A non-EU client of the bank entered into a legal dispute with another company, which also brought legal proceedings against Midland Bank for misrepresentations. The bank incurred legal fees on which it claimed the input VAT in full as being related to financial services provided to the non-EU client.  The UK tax authorities stated that the legal services were to defend the bank against potential negligence of the bank incurred whilst performing services to the non-EU client. As such, the input VAT relates to general costs (overheads) and should be apportioned. 59

Deductions: Economic activities  Midland Bank C-98/98 [2000]  ECJ : the right to deduct must have a direct and immediate link with the taxable transaction  ECJ : the right to deduct the VAT charged on goods or services presupposes that the expenditure incurred in obtaining them was part of the cost components of the taxable transactions. 60

Deductions: Economic activities  Midland Bank C-98/98 [2000]  ECJ : There is no direct and immediate link between the legal services and the services provided to the non-EU client.  ECJ : The legal services form part of the general costs because they were incurred not for providing financial services to the non-EU client, but as a consequence of providing financial services to the non-EU client. 61

Deductions: Summary (1) Input VAT on No right of Non-economic goods/ deduction activities (“ pre- services pro-rata deduction ”) right of economic deduction activities As per summary (2) 62

Deductions: Summary (2) ECONOMIC ACTIVITIES Full right of Taxable deduction transactions Input VAT on direct and goods/ No right of Non-business immediate services deduction /exempt transactions Non attributable to Direct and Pro-rata specific output immediate deduction transactions link to general costs but 63

Deductions: Economic activities  However, as an exception and in specific circumstances, right to deduct exists even if a direct and immediate link between a particular input transaction and an output transaction(s) giving rise to the right to deduct cannot be established – INZO C-110/94 [1996] – Ghent Coal Terminal C-37/95 [1998] 64

Deductions: Economic activities INZO C-110/94 [1996]  INZO incurred expenses in commissioning a study for the construction of a desalination plant. It reclaimed, and received, the input VAT on the professional fees. Due to profitability concerns the project never materialised and INZO was placed in liquidation without having undertaken any taxable transactions.  Dutch tax authorities denied right of deduction stating that in light of no taxable transactions, INZO was never a taxable person and has no right to deduct.  ECJ : even the first expenditure may be regarded as economic activity and the status of ‘taxable person’ may not be withdrawn retroactively merely because the company did not move to the operational phase. Right to deduct thus exists. 65

Deductions: Rules governing exercise of right  Depending on type of transaction, taxable persons must adhere to rules in order to be able to exercise the right of deduction  Principally: – hold a valid invoice, and/or – comply with formalities as laid down by the MS, and/or – set out required information in VAT return, and/or – hold a valid import document. [ 178 ] 66

Deductions Pro-Rata Example

Deductions: Pro-Rata Example  CyCo A has the following forms of income:  Income from consultancy services to Dutch company €50.000  Income from consultancy services to Cyprus company €15.000  Interest income from loans to Italian company €10.000  Interest income from loans to Russian company €75.000  Dividend income from French subsidiary €5.000  Dividend income from Swiss subsidiary €20.000  Total income: €175.000 68

Deductions: Pro-Rata Example  CyCo A has the following forms of expenses:  Consultancy expense from Greek supplier relating to the consultancy services provided to Dutch company €20.000  Interest expense relating to back-to-back loan received for provision of Italian loan €7.500  Legal expenses from Russian lawyers relating to draft of loan agreement for provision of Russian loan €5.000  Bookkeeping expenses from Cyprus service provider relating to French subsidiary €2.000 + VAT  Professional services received from Swiss lawyers for the acquisition of the shares in the Swiss subsidiary €10.000  Audit services €5.000 + VAT  Purchase of cigars from Cyprus supplies for the use of the director €500 (inclusive of Cyprus VAT)  Total expenses: €50.000 69

Deductions: Pro-Rata Example  Is CyCo obligated to register for VAT?  Yes. It has consultancy income to a Cyprus company of €15.000 which is under the registration threshold of €15.600 but it also has received services from outside of Cyprus (consultancy and legal services) on which the reverse charge applies.  In total the above exceed the registration threshold and so CyCo must register for VAT.  In addition, if the Dutch company is VAT registered in the Netherlands, then CyCo must register for VAT in order to report the transaction on VIES (no threshold applies in this case). 70

Deductions: Summary (1) Input VAT on No right of Non-economic goods/ deduction activities (“ pre- services pro-rata deduction ”) right of economic deduction activities As per summary (2) 71

Deductions: Pro-Rata Example  From the data we can see that the CyCo has 2 subsidiaries  One in France  One is Switzerland  If CyCo provides any services to the subsidiaries for consideration , then then ‘holding’ of the subsidiary shares will be considered as an economic activity providing full right of deduction => no pre pro-rata will be undertaken ( Polysar )  However from the data, no such income from the subsidiaries is noted therefore a pre pro-rata will be required ( Securenta ) 72

Deductions: Pro-Rata Example  As such, the following expenses relate to the holding, which is a non-economic activity:  Bookkeeping expenses from Cyprus service provider relating to French subsidiary €2.000 (Cyprus VAT would apply on the invoice)  Professional services received from Swiss lawyers for the acquisition of the shares in the Swiss subsidiary €10.000 (CyCo would apply reverse charge).  No deduction is allowed for the above.  CyCo would also apply a pre pro-rata on the audit services which form a general overhead of the company. There is no formula for this. We will assume a 2,5% pre pro-rata percentage will be acceptable. 73

Deductions: Pro-Rata Example  VAT therefore payable / not recoverable due to pre pro-rata:  € 380 (being €2.000 *19%) for bookkeeping expenses from Cyprus service provider relating to French subsidiary (Cyprus VAT would apply on the invoice)  €1.900 (being €10.000 *19%) for professional services received from Swiss lawyers for the acquisition of the shares in the Swiss subsidiary (CyCo would apply reverse charge)  € 23,75 (being €5.000 *19%*2,5%) for audit services received (Cyprus VAT would apply on the invoice) 74

Deductions: Summary (2) ECONOMIC ACTIVITIES Full right of Taxable deduction transactions Input VAT on direct and goods/ No right of Non-business immediate services deduction /exempt transactions Non attributable to Direct and Pro-rata specific output immediate deduction transactions link to general costs but 75

Deductions: Pro-Rata Example  Further expenses of CyCo A :  Consultancy expense from Greek supplier relating to the consultancy services provided to Dutch company €20.000  Directly attributable to provision of consultancy services therefore reverse charge would apply with full right of deduction  Interest expense relating to back-to-back loan received for provision of Italian loan €7.500  Exempt expense – no VAT consequences  Legal expenses from Russian lawyers relating to draft of loan agreement for provision of Russian loan €5.000  Directly attributable to provision of financing services to a recipient outside of the EU therefore reverse charge would apply with full right of deduction 76

Deductions: Pro-Rata Example  Further expenses of CyCo A (continuation):  Cigar expenses €500  Directly attributable to non-business expenses and so no right of deduction for VAT of €79,83 (€500 * 19/119) 77

Deductions: Pro-Rata Example  Further expenses of CyCo A (continuation):  Audit expenses €5.000 + VAT  VAT on this amounts to €950 (€5.000 * 19%)  €23,75 already accounted for through pre pro-rata  €926,25 (€950 - €23,75) therefore remains  This is a general overhead – input VAT will be claimed using pro-rata calculation 78

Deductions: Pro-Rata Example  Further expenses of CyCo A (continuation):  Input VAT on audit fees remaining €926,25  as numerator, the total amount, exclusive of VAT, of turnover per year attributable to transactions in respect of which VAT is deductible  as denominator, the total amount, exclusive of VAT, of turnover per year attributable to transactions included in the numerator, and to transactions in respect of which VAT is not deductible 79

Deductions: Pro-Rata Example Income:  Pro-rata:  Income from consultancy services to Dutch company €50.000 full right 50.000+15.000+75.000  Income from consultancy services to ----------------------------------------- Cyprus company €15.000 full right 50.000+15.000+75.000+10.000  Interest income from loans to Italian  Gives a % of 93,33% company €10.000 no right  Rounded up to next whole number  Interest income from loans to Russian therefore 94% company €75.000 full right  Dividend income from French subsidiary €5.000 ignore  Remaining Input Vat recoverable on  Dividend income from Swiss subsidiary audit fees = €926,25 * 94% = €870,68 €20.000 ignore 80

Holding Companies Deduction in the case of acquisition of shares

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  Cibo is a holding company which owns significant shareholdings in three undertakings specialising in bicycles.  Cibo acquired the shares in its subsidiaries receiving for this purpose various third party services, including the auditing of the companies, assistance with the negotiation of the purchase price of the shares, organising the take-over of the companies and legal and tax services. It deducted the input VAT on these services.  The tax authorities refused the deduction of the input VAT for the supply of the aforementioned services 82

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  Cibo pointed out that:  its chairman became the chairman of the three subsidiaries,  it provides services to those subsidiaries against payment,  CIL (Cibo’s main shareholder) makes available, against payment, qualified staff to work in its subsidiaries in general, administrative, financial, commercial and technical management, and  the subsidiaries were invoiced for those services on a flat-rate basis of 0.5% of their turnover.  Cibo maintains that it is thus involved in the management of its subsidiaries and that, consequently, the expenditure linked to its acquisition of shares falls within the scope of VAT as general expenses, given that it pertains to the holding company's general business. 83

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  The French tax authorities reply that Cibo derives most of its turnover from the receipt of dividends.  They claim Cibo does no more than act as consultant and direct group policy, in respect of which it receives remuneration and so is neither directly nor indirectly involved in the management of its subsidiaries.  Therefore, they claim the expenditure arising from its acquisition of shareholdings has no connection with the services which it provides to its subsidiaries. It merely relates to its ownership of shares and receipt of dividends, which fall outside the scope of VAT. 84

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  However, even if Cibo were to be regarded as being involved in the management of its subsidiaries, the French tax authorities maintain that the dividends must be associated with the company's economic activity and thus with its income falling within the scope of VAT, but that, given that they are exempted, a pro-rata deduction should be made. 85

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  ECJ : direct or indirect involvement in the management of subsidiaries must be regarded as an economic activity where it entails carrying out transactions which are subject to VAT, such as the supply by a holding company such as Cibo of administrative, financial, commercial and technical services to its subsidiaries. 86

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  ECJ : in order to give rise to the right to deduct, the goods or services purchased must have either a direct and immediate link with the output transactions in respect of which VAT is deductible,  or  the expenditure incurred in acquiring them are part of the taxable person's general costs and are, as such, cost components of his products or services and thus have a direct and immediate link with the taxable person's business as a whole 87

Deduction for acquisition of shares  Cibo, ECJ, Case C-16/00 [2001]  ECJ : the cost of the said services forms part of Cibos general costs and thus have a direct and immediate link with Cibo’s business as a whole  if Cibo carries out both transactions in respect of which VAT is deductible and transactions in respect of which it is not, it follows that it may deduct only that proportion of the VAT which is attributable to the former.  however, the receipt of dividends is not the consideration for any economic activity, it does not fall within the scope of VAT, and thus is ignored for the deduction calculation 88

Holding Companies Deduction in the case of sale of shares

Deduction for sale of shares  The trading in shares constitutes an economic activity since it is undertaken with the purpose of obtaining income therefrom on a continuing basis.  In this case, the activity is exempt from VAT since it has to do with shares, i.e. there is no deduction for related input VAT.  In the case however where the shares were acquired as a non-taxable persons, then the subsequent sale of the shares does not alter the classification of the non-taxable person 90

Deduction for sale of shares  Wellcome Trust , ECJ, Case C-155/94 [1996]  Sir Henry Wellcome, who died in 1936, provided in his will, that the management of all his shares in a Foundation, having the underlying pharmaceutical business of Burroughs, Wellcome and Co, was to be entrusted to the Trustees of the Wellcome Trust.  The Trust was to use the proceeds from the shares for research into human and animal medicine and for the study of the history of medicine. 91

Deduction for sale of shares  Wellcome Trust , ECJ, Case C-155/94 [1996]  Over the next 60 years, the Wellcome Trust effected the sale of a number of shares, over two specific Share Sales periods, to a large number of buyers, the proceeds from which were used for other investments.  In 1993, the Trust applied for a refund of input VAT on expenditure incurred in the preparation of the Second Share Sale, which the Trust considered to be an economic activity. The amount of VAT reclaimed represented 33.22% of the total tax paid on the expenditure incurred and corresponded to the percentage of shares sold to persons resident outside the Community. 92

Deduction for sale of shares  Wellcome Trust , ECJ, Case C-155/94 [1996]  The UK VAT Commissioners rejected the above application on the ground that the shares and other securities held by the Trust were held for charitable purposes and that the disposals in question had not been made in the course or furtherance of any business carried on by the Trust 93

Deduction for sale of shares  Wellcome Trust , ECJ, Case C-155/94 [1996]  ECJ : the mere exercise of the right of ownership by its holder cannot, in itself, be regarded as constituting an economic activity  if such activities do not in themselves constitute an economic activity, the same must be true of activities consisting in the sale of such holdings. 94

Deduction for sale of shares  AB SKF , ECJ, Case C-29/08 [2009]  The share company SKF is the parent company of an industrial group which carries on activities in a number of countries.  It plays an active role in the management of its subsidiaries and supplies to them, for consideration, services, including management, administration and marketing policy.  Those services are invoiced to the subsidiaries and SKF is liable for VAT on them. 95

Deduction for sale of shares  AB SKF , ECJ, Case C-29/08 [2009]  SKF intends to restructure its group and, in that connection, to dispose of the business of two subsidiaries.  The reason for those disposals is to obtain funds to finance other activities of the group.  In order to carry out those disposals, SKF will acquire supplies of services in the area of valuation of shares, assistance with negotiations and specialised legal advice for the drafting of the contracts. 96

Deduction for sale of shares  AB SKF , ECJ, Case C-29/08 [2009]  SKF believes it has a full right of deduction of input VAT. It applied to the department for rulings of the Swedish VAT authorities for a preliminary ruling and receive a positive ruling  The Tax Agency of the Swedish authorities appealed against this ruling to the courts 97

Deduction for sale of shares  AB SKF , ECJ, Case C-29/08 [2009]  ECJ : The disposals carried out in order to enable SKF to restructure the group of companies, can be regarded as a transaction that consists in obtaining income on a continuing basis from activities which go beyond the compass of the simple sale of shares  The disposals have a direct link with the organisation of the activity carried out by the group and constitutes accordingly the direct, permanent and necessary extension of the taxable activity of the taxable person, and thus comes within the scope of VAT. 98

Holding Companies Deduction in the case of new issue of shares

Deduction for issue of shares  Kretztechnik, ECJ, Case C-465/03 [2005]  Kretztechnik is a company established in Austria whose objects are the development and distribution of medical equipment.  By resolution of its general meeting of shareholders of 18 January 2000, its capital was increased from EUR 10 million to EUR 12.5 million.  With a view to raising the capital needed for that increase, it applied for admission to the Frankfurt Stock Exchange. 100