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On 10 December 2024, the State Secretary of Finance published new policy on the VAT position of holding companies and the recovery of VAT on transaction costs. The relevant decrees come into effect on 1 July 2025 and entail several important changes that should already be considered (although some of these changes result from existing case law from the European Court of Justice). We briefly discuss the most important changes below.

VAT fiscal unity

Under the existing ‘holding resolution’, holding companies that do not qualify as VAT entrepreneurs but perform an active management and policy-making function within a group may be part of a VAT fiscal unity under certain conditions. The ‘holding resolution’ is amended as follows:

• Intermediate holding companies that do not qualify as a VAT entrepreneur but perform an active management and policy-making function within a group can also be included in the VAT fiscal unity;
• However, these (intermediate) holding companies must be financially, organizationally, and economically linked.

Another positive development with respect to the joint and several liability is that VAT entrepreneurs cannot be regarded as a VAT fiscal entity against their will for a period before the effective date stated in the decision of the Dutch tax authorities.

Point of attention

It does not follow from the new decree how (intermediate) holding companies can meet the economic link. Possibly this refers to having ‘non-negligible economic relations’ with other members of the VAT fiscal unity. However, until there is further guidance on this, we recommend seeking alignment on this point with the Dutch tax authorities.

VAT position of holding companies

A holding company does not qualify as a VAT entrepreneur if it passively acquires and holds shares in a shareholding (e.g. for investment purposes). However, VAT entrepreneurship does exist in the following situations:

1. A holding company provides taxable activities to its subsidiary for remuneration (‘steering function). This can also be a minority shareholding.
2. The holding company's participation is a direct, permanent, and necessary ‘extension’ of the holding company's (overall) economic activity.
   • Examples of transactions with shares that fall within the scope of VAT are: a restructuring, an expansion or modification of the operational activities, the generation of cash flow for the overall economic activity, transactions to provide coverage to the economic activity.
3. An entrepreneur who commercially trades in shares and other securities.

Point of attention

Although the ‘extension’ of the holding company's (overall) economic activity is described quite extensively in the new decree, it is not clear to what extent the Dutch tax authorities will apply it. Also in this respect, it may be considered to seek alignment with the Dutch tax authorities beforehand.

Recovery of VAT on transaction costs

There is in any case no recovery of VAT on transaction costs in case the holding company does not qualify as a VAT entrepreneur. To the extent transactions relating to shares such as the acquiring, holding, issuing, and selling thereof are carried out as a VAT entrepreneur, there may be a right to recover VAT on transaction costs. Below we have included a brief overview of the new policy:

Acquisition costs

The VAT on acquisition costs is eligible for recovery to the extent that the holding company intends to perform taxable activities against remuneration to its subsidiary. The decree does not mention any changes on this point (the existing case law of the European Court of Justice remains applicable).

Divestment costs

• There is no recovery of VAT if costs are directly attributable to the sale of shares (unless the purchaser is located outside the EU).
• Costs incurred prior to the sale of shares and not directly attributable to the sale may be eligible - as general expenses - for VAT recovery. The same seems to apply to costs incurred after the sale and to the extent also not directly attributable to it, but the decree is not very clear on this point.
• There is a pro rata right to recover VAT on divestment costs to the extent the costs are directly attributable to the overall economic activity of the VAT entrepreneur (cf. the ‘extension’ under point 2 above).

Point of attention

The positive exception that applied to the recovery of VAT on divestment costs relating to the sale of shares in a subsidiary with which the holding company forms a VAT fiscal unity seems to be abolished. In contrast, the ‘extension’ or ‘concern’ theory may offer more opportunities for recovery of VAT under the new decree.

Pro rata recovery right

Sale proceeds do not have to be included in the pro rata calculation if the sale of shares constitutes an incidental financial transaction. This is the case if the sale is incidental, few costs are incurred with the sale and the sale is not part of the entrepreneur's core activity. The same may apply to the sale of shares of a subsidiary with which the holding company forms a VAT fiscal unity.

The sale of shares does not qualify as an incidental financial transaction for the entrepreneur commercially trading in shares and other securities, and for the entrepreneur who is involved in private equity investments as a ‘participation or investment company’ or as an affiliated entity.

Point of attention

The decree appears to have a negative effect on private equity investments because, based on the above, sales proceeds always need to be included in the pro rata calculation. However, depending on the level at which the divestment takes place, we expect the scope to be limited to those entities within the structure that have been established with respect to the initial acquisition.

Should you have any questions, please feel free to reach out to Sebastiaan Wijsman or Manon van Bijlevelt.