Change of policy on VAT deduction for the sale of shares in a subsidiary
The 2004 policy is withdrawn with effect from 1 July 2025. Sale costs on an exempt share disposal will no longer count as general costs, so the VAT on them becomes a real cost.
Holding shares in a subsidiary is in principle not an economic activity for VAT purposes. A holding company is therefore not a taxable person in respect of acquiring, holding and selling shares. There are three exceptions:
- holding the shares is accompanied by supplies for consideration to the subsidiary, such as management services
- the holding company deals in shares as a business
- holding the shares is a direct, permanent and necessary extension of the holding company's economic activity
In these three situations the holding company is a taxable person and the sale of the shares is exempt. Under the law, VAT on costs attributable to such an exempt sale is not deductible at all, unless the shares are sold to a customer outside the EU, in which case full deduction is available.
Current policy
Under policy in force since 2004, deduction is nevertheless possible on an exempt share sale to a customer established in the EU. That is so first of all for a holding company with a policy-setting and directing role whose subsidiary, under a concession, forms part of a VAT group. The VAT group can then deduct the VAT on the sale costs, and the exempt sale does not affect deduction on general costs.
The policy also allows deduction in situation 1. Departing from case law that appeared later, the decree limits that situation to a holding company owning a majority of the shares. With such a majority holding, the sale costs are treated as general costs, that is costs not directly attributable to the exempt sale, and the sale price is left out of the denominator of the pro rata fraction. The exempt sale therefore has no adverse effect on deduction of sale costs or other general costs.
New policy from 1 July 2025
The 2004 policy rests on superseded Supreme Court case law from 2003 and 2004. It was therefore a question of when, not whether, it would be amended. Through a change to the decree on input VAT deduction, the 2004 decree is withdrawn with effect from 1 July 2025.
In line with the case law, situation 1 is no longer limited to majority holdings. An important change is that sale costs in situation 1 no longer count as general costs. They will normally be costs directly connected with the exempt share sale, and no deduction at all is available for the VAT on them unless the customer is established outside the EU. Where the exempt sale is a one-off, it does not restrict deduction on the holding company's general costs such as premises and audit fees.
Where a holding company with a policy-setting and directing role forms part of a VAT group with the subsidiary whose shares are sold, holding those shares can be the direct, permanent and necessary extension of the subsidiary's economic activity (situation 3). The new decree takes the position that a one-off exempt share sale does not affect the VAT group's deduction on general costs. From 1 July 2025, however, the VAT on sale costs directly connected with that sale is no longer deductible and becomes a real cost.
What this means for you
From 1 July 2025 a holding company selling shares in a subsidiary will in principle bear non-deductible VAT on its sale costs. If you are planning a sale in the near future, take that restriction into account and consider scheduling the transaction before that date.
The change concerns sale costs that bear VAT, which is not necessarily the case on a share sale. Where the M&A or corporate finance services bought in qualify as intermediation in the sale of shares, the supplier may not charge VAT on those fees, and with foreign suppliers the holding company owes no reverse-charge VAT on them. Intermediation in the sale of shares is exempt.
Both the selling holding company and the M&A or corporate finance provider would do well to look critically at the contracts and invoices. In practice the exemption regularly goes unrecognised, with consequences: correcting invoices that wrongly show VAT, repaying that VAT to the holding company and adjusting the provider's own deduction because it has made exempt supplies.