VAT and holding companies

By Tolley

The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • VAT and holding companies
  • Typical functions of a holding company
  • VAT registering a holding company
  • Recovering VAT
  • VAT grouping
  • Deducting input tax

This note provides an overview of HMRC current policy with regard to the VAT treatment of holding companies. This note mainly deals with input tax recovery by holding companies in respect of their business and non-business activities and it gives an overview of relevant case law which has formulated the current VAT position.

Typical functions of aholding company

True holding companies typically have the following functions:

  • acquiring shares in subsidiaries
  • receiving dividends arising from the shareholdings
  • defending itself and its subsidiaries from takeovers
  • investing, depositing or lending money
  • issuing or selling shares

VIT40500; Directive 2006/112/EC , Article 9(1); De Voil Indirect Tax Service V7.169–V7.170 (subscription sensitive)

The activities listed above are either outside the scope of VAT or exempt from VAT. A holding company that only undertakes the above activities will not be entitled to register for VAT. This was confirmed in the CJEU decision in Empresa de Desenvolvimento Mineiro SGPS (EDM) where the CJEU held that the simple sale of securities (eg holdings in investment funds) did not constitute economic activities and that placement in investment funds did not constitute supplies of services effected for aconsideration.

Empresa de Desenvolvimento Mineiro SGPS (EDM) C-77/01 

It is also becoming more common for holding companies to provide management services to their subsidiaries, which may enable the holding company to register for VAT, in order to recover all or part of the VAT incurred on their costs.

VAT registering aholding company

Unless the holding company will be included in aVAT group, it will need to make taxable supplies in order to be able to register for VAT. It is also important that these taxable supplies are genuine supplies

More on Claiming input tax: