On 10 December 2024, the Dutch State Secretary of Finance announced that as of 1 July 2025, two import decrees known as the Holding decree and the decree on the sale of shares are going to be revoked, and issued two new decrees. The revoked decrees included important guidance on the right to recover input VAT relating to the purchase, holding, and sale of shares.
The new decrees have majorly changed various topics and might have an impact on companies having holding activities as of 1 July 2025.
Background
In principle, the holding of shares does not constitute a business activity for VAT purposes. As a result, a holding company that merely holds shares cannot recover VAT on its costs. Also, the VAT on costs for the acquisition or sale of shares can be limited.
However, based on EU case law, the acquisition, holding, and sale of shares is considered a business activity for VAT purposes in the following situations:
- the holding company is involved in the management of its subsidiary by providing VAT-taxable services;
- the share transaction is aimed at reorganizing, supporting, or extending future business activities; or
- the shareholding activity constitutes a business activity (which applies for example to stockbrokers).
In practice, the VAT position of holding companies is often subject to discussion with the Dutch tax authorities. Therefore, the updated / new decrees provide some guidance on the VAT position of holding companies.
We will discuss the major changes.
Holding of shares by an entrepreneur
As mentioned from 1 July 2025, the Holding decree will be revoked which is the current guidance concerning the VAT position of holding companies. Due to its broad interpretation, the holding decree allowed holding companies to fully recover input VAT if they were only engaged in VAT-taxed activities, despite their shareholding activities. Passive shareholding activities which do have an impact on the VAT deduction were disregarded. However, this broad interpretation contradicted EU case law and in practice was often disregarded by the Dutch tax authorities.
In the new decree, this is no longer included and therefore might have an impact on the right to recover input VAT for holding companies.
VAT recovery on the cost of the sale of shares
The sale of shares by a VAT entrepreneur is VAT exempt and therefore may (negatively) affect the pro rata of a company and therefore the right to recover input VAT. In the old decree the right to recover input VAT should be determined on the pro rata of the company in case of:
- a sale of a daughter company to which the holding company provided services or goods against renumeration
- the sale of a daughter company who together with the holding company were considered a fiscal unity for VAT purposes
The new decree however provides a more elaborate steps to determine if and what amount of VAT can be deducted.
- Firstly it should be considered if the share prior to the sale should be considered as part of the entrepreneur activities of the company. If not, no VAT recover is allowed.
- If this is the case then secondly it should be considered if the cost are directly and exclusively attributable to the sale of the shares. If so, then VAT can only be recovered in case of a non-EU established buyer of the shares. For EU buyers no VAT recovery is allowed.
- If the cost are not directly and exclusively attributable to the sale of the shares, a third test is applicable. The cost should be considered as part of the general economic activities of the company, a pro rata is applicable for the recovery of VAT on the cost.
In addition, as the proceeds from the sale of shares are often significant, the impact on the pro rata can be significant. The new guidelines in the Dutch decree for the right to recover input VAT state that these incidental financial activities for the sale of shares do not need to be included in the pro rata of the company or the same VAT group. Note that for stockbrokers and businesses involved with private equity, it is explicitly mentioned that the sale proceeds must be included in the pro-rata calculation.
Management holdings and VAT grouping
A holding company that does not carry out any business activities cannot be part of a VAT group it does not qualify as a VAT entrepreneur. The new guidelines maintain the current option to include a holding company that is not a VAT entrepreneur in a VAT group under the condition that a request is submitted to the Dutch tax authorities beforehand. To add the holding company to the VAT group, the holding company should act as the management holding of the group, which actively manages and sets the strategies and policies for the group. However, in contrary to the previous decree now the management holding should also meet the fiscal unity criteria of financial, organizational and economic link. We expect that especially the requirement for the economic link can lead to discussions in case of non-VATable holdings.
The continuation of this regulation has a beneficial impact on holding companies that otherwise would not be allowed to recover input VAT.
Our conclusion
Although the changes in the Dutch decrees and the revoking of the old decrees have been long awaited, the guidelines mostly describe familiar points, however, there are notable changes. For some specifics, time will need to tell the actual interpretation by the Dutch tax authorities. Especially there are still aspects that remain unclear.
We, therefore, recommend all companies that are involved in shareholding or transactions with shares to determine the impact on their VAT position.