Opinion of the Advocate General — ECLI:EU:C:2020:378
Date: 2020-05-14
Language of the case: Portuguese
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Portugal

Summary C-42/19 — 1 
Case C-42/19 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
24 January 2019 
Referring court:  
Supremo Tribunal Administrativo (Portugal) 
Date of the decision to refer:  
5 December 2018 
Appellant:  
Sonaecom SGPS S.A. 
Respondent: 
Fazenda Pública (on behalf of the Autoridade Tributária e 
Aduaneira) 
 
Subject matter of the main proceedings 
Appeal against the judgment of the Tribunal Administrativo e Fiscal do Porto 
(Porto Administrative and Tax Court) which dismissed the legal challenge brought 
by Sonaecom SGPS, S.A. against the notices of assessment of value added tax 
(VAT) and compensatory interest for the periods January, February, March, April, 
June, July, August, October and December 2005 in the overall sum of 
EUR 1 088 675.77. 
Subject matter and legal basis of the request for a preliminary ruling 
The dispute in the main proceedings concerns the issue whether the deduction of 
value added tax borne by a company, with a view, first, to procuring services and, 
second, to paying a commission for a service which was intended as an 
investment, complies with the deductibility rules laid down in the Sixth VAT 
Directive, where the company’s planned procurement and the investment both 
failed to materialise. 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-42/19 
 
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Legal basis: Article 267(3) TFEU. 
Questions referred 
(1) Is it compatible with the deductibility rules laid down in the Sixth VAT 
Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax 
borne by the appellant, Sonaecom SGPS, in respect of consultancy services 
connected with a market study commissioned with a view to acquiring shares, 
where that acquisition did not materialise? 
(2) Is it compatible with the deductibility rules laid down in the Sixth VAT 
Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax 
borne by the appellant, Sonaecom SGPS, in respect of the payment to BCP of a 
commission for organising and putting together a bond loan, allegedly taken out 
with a view to integrating the financial structure of its affiliated companies, and 
which, since those investments failed to materialise, was ultimately transferred to 
Sonae, SGPS, the parent company of the group? 
Provisions of EU law cited 
Articles 4(1) and (2) and 17(1), (2) and (5) of the Sixth Council Directive 
77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member 
States relating to turnover taxes — Common system of value added tax: uniform 
basis of assessment (OJ 1977 L 145, p. 1). 
Provisions of national law cited 
Código do Imposto sobre o Valor Acrescentado (Code on Value Added Tax): 
Article 9(28)(a):  
‘The following shall be exempt from the tax: 28 — ... (a) the granting and 
negotiation of credit, in any form, including discount and rediscount transactions, 
and the administration and management of credit by the person who granted it.’ 
Article 20(1) (which lists the situations in which there is a right to a deduction): 
‘the tax which applies to goods and services procured, imported or used by the 
taxable person for the following purposes: (a) the supply of goods and the 
provision of services which are subject to tax and are not exempt;’ 
 
SONAECOM 
 
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Brief summary of the facts and procedure 
1 The appellant, Sonaecom SGPS, S.A., is a holding company which is engaged in 
the acquisition, holding and management of shares with full rights to the resulting 
income. In addition, it also provides strategic coordination and management 
services to companies operating in the telecommunications, media, software and 
systems integration markets. 
2 In the course of its business, it procured consultancy services from Wilmer Cutler 
Pickering Hale and Dorr, and from ABN Amro Corporate Finance Ltd in 
connection with a market study, an activity carried on by those companies, for the 
purpose of possible active acquisitions of share capital by Sonaecom SGPS, S.A. 
3 The appellant bore the value added tax (‘VAT’) in respect of the payment for 
those consultancy services, having applied a VAT reverse-charge in the amounts 
of EUR 167 129.10 and EUR 45 498.46 in relation to those costs. 
4 The appellant also deducted VAT in the sum of EUR 769 500 in the return for 
June 2005 relating to the payment of a commission to Banco BCP Investimento 
S.A. in respect of a contract to organise, put together and guarantee the placement 
of a private issue of 3 000 000 bonds known as ‘Obrigações Sonaecom SGPS 
2005’ (Sonaecom SGPS 2005 Bonds), which were intended to finance the 
company’s operations in the service known as ‘Triple Play’. 
5 Following an audit, the Autoridade Tributária e Aduaneira (Tax and Customs 
Authority) took the view that the appellant could not deduct the VAT incurred in 
respect of those consultancy services. It considered that such consultancy services 
‘connected with the market study commissioned for the purpose of acquiring 
share capital in other companies are intended to assist in the acquisition of 
securities which will confer on the owners an entitlement to dividends which are 
outside the scope of VAT taxation, given that the purchase, sale and possession of 
shares do not constitute an economic activity’. 
6 The Tax and Customs Authority also took the view that the taxable person did in 
fact carry out transactions which fall within the scope of the tax and are subject to 
VAT in the national territory. However, it considered that, since such inputs were 
intended to be used by the taxable person in order to acquire share capital in other 
companies, an activity which falls outside the scope of the tax, they do not give 
rise to a right of deduction by virtue of Article 20(1)(a) of the Portuguese Code on 
Value Added Tax. 
7 Consequently, the Tax and Customs Authority carried out arithmetic adjustments 
to the taxable amount in the sum of EUR 982 127.56, which gave rise to the 
notices of assessment from January to April, June to August, October and 
December in the sum of EUR 982 127.57 in tax and EUR 106 548.20 in 
compensatory interest. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-42/19 
 
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8 The applicant brought an action before the Tribunal Administrativo e Fiscal do 
Porto against those assessments, and in the judgment handed down by that court it 
was concluded that the evidence provided made it clear that the then applicant has 
the characteristics of a mixed holding company, because it manages shares and at 
the same time provides technical administration and management services to the 
affiliated companies. 
9 In that judgment, the Tribunal Administrativo e Fiscal do Porto took the view that 
the commercial nature of the actions taken in the activity of managing 
shareholdings (Articles 2 and 463(5) of Portugal’s Código das Sociedades 
Comerciais (Corporate Code) does not mean that that activity may be qualified as 
an economic activity within the meaning of Article 4(2) of the Sixth Directive, as 
is clear from the settled case-law of the Court of Justice of the European Union, 
and therefore it amounts to an activity which is outside the scope of VAT and is 
not subject to VAT. 
10 Having analysed the nature of the then applicant’s mixed holding company, the 
Tribunal Administrativo e Fiscal do Porto took the view in that judgment that, in 
order for the VAT borne by the applicant, in its capacity as a mixed holding 
company, to be deductible, the input transactions would have to have a direct and 
immediate connection with the output operations, the nature of which then gives 
rise to a right of deduction. That court thus took the view that it would be 
necessary for the transactions to have been economic transactions for VAT 
purposes and for the expenses incurred in procuring the goods or services in 
respect of which input VAT was incurred to have been included in the cost 
components of output operations with a right of deduction, since only in that way 
would the right of deduction be justified in view of the objective of tax neutrality. 
11 With regard to the first of the transactions at issue in the proceedings at first 
instance (the payment for outside consultancy services with a view to the 
acquisition of shares which did not materialise), the Tribunal Administrativo e 
Fiscal do Porto concluded in its judgment that it was an operation to give effect to 
the objectives pursued by the applicant as part of an activity which falls outside 
the scope of VAT (the activity of acquiring and managing shares does not 
constitute the pursuit of an economic activity for the purposes of the Sixth 
Directive) and, to that extent, has no possibility of a tax deduction under 
Article 4(1) and (2) of the Sixth Directive. 
12 As regards the second of the transactions dealt with in the proceedings in question 
(payment of a commission to BCP Investimento, SA in respect of a contract to 
organise, put together and guarantee the placement of a private issue of 3 000 000 
bonds in the sum of EUR 150 000 000), the Tribunal Administrativo e Fiscal do 
Porto concluded in its judgment that, since it has been established specifically that 
the capital in question was transferred in full to the group’s parent company 
(Sonae, SGPS S.A.), it has not been demonstrated that that capital benefited the 
affiliated companies, and to what extent, or that it had been employed in an output 
SONAECOM 
 
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transaction giving rise to a right of deduction (Articles 20 and 9(28)(a) of the 
Portuguese Code on Value Added Tax. 
13 In conclusion, the Tribunal Administrativo e Fiscal do Porto held in its judgment 
that, by virtue of Article 4(1) and (2) of the Sixth Directive and Article 20(1)(a) of 
the Code on Value Added Tax, and by virtue of the latter provision in conjunction 
with Article 9(28)(a) and (f) of the Code on Value Added Tax, the VAT borne by 
the applicant (in the procurement of the auditing services with a view to acquiring 
shares and in the payment of the commission to BCP Investimentos, SA for 
organising and putting together a bond loan) is not deductible. 
14 Sonaecom SGPS S.A. lodged an appeal against that judgment at the Supremo 
Tribunal Administrativo (Supreme Administrative Court). 
The essential arguments of the parties to the main proceedings 
15 Sonaecom SGPS S.A. claims that ‘the tax borne by the appellant in the 
acquisitions at issue in the main proceedings will always be deductible given that, 
by their nature, those acquisitions must at least be regarded as forming part of the 
costs which the applicant had to incur in order to be able to perform properly the 
services which it regularly provides for its affiliates’.  
16 Sonaecom SGPS S.A. claims that, given that it is a mixed holding company and 
that its interventions in the management of the affiliated companies are repeated 
and significant, in particular through cooperation in the development of their 
strategy and in the provision of services for remuneration, it, in turn, frequently 
needs to procure a huge variety of supplies and services from third parties. 
17 The appellant submits that the present case concerned the provision of services to 
affiliated companies by Sonaecom SGPS S.A which received the relevant 
consideration in a manner and to a level of satisfaction which was never 
questioned by the Tax Authority. Similarly, it notes that those supplies of services 
are transactions which are taxed at the full rate of VAT (they fall within the scope 
of the tax and are not exempt) and that that tax was in fact charged in respect of 
those transactions, which means that there is a direct relationship between the 
outputs and the procurement of the services, and therefore the VAT borne in 
respect of that procurement must be deductible. 
18 The applicant argues further that the fact that the acquisition of shares did not 
materialise does not negate that interpretation, given that such an occurrence does 
not preclude the view that the procurement of the services for which VAT was 
paid took place as part of an activity carried on by the appellant which involves 
making transactions that are subject to, and not exempt from the tax. Finally, 
Sonaecom SGPS S.A. concludes by stating that, for that reason, the issue concerns 
procured services which are directly connected with its activity of providing 
technical and management services to its affiliates — an activity which is subject 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-42/19 
 
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to and not exempt from VAT — and not with the activity of ‘holding and 
managing shares’. 
19 Having been called upon to provide an opinion on the appeal lodged, the Assistant 
State Counsel at the Supremo Tribunal Administrativo considers that, in addition 
to managing shares, holding companies may perform the activities authorised by 
Articles 4 and 5 of the Portuguese Companies Code. 
20 The activity of those companies is therefore not limited, in legal terms, to 
acquiring, holding and selling shares, which the Court of Justice of the European 
Union has held in its case-law do not amount to an economic activity within the 
meaning of Article 4(2) of the Sixth Directive. 
21 On that basis, the Assistant State Counsel concludes that holding companies, in 
the course of their activity of providing services, may not be precluded from 
performing transactions which are subject to VAT, with the ensuing right of 
deduction, to be implemented in general terms. In the present case, input 
transactions must have a direct and immediate connection with the output 
transactions and the latter must, by their nature, give rise to a right of deduction. 
22 In the light of the evidence in the case file, the Assistant State Counsel considers 
that that is not the case with either of the two transactions at issue in the main 
proceedings. 
23 The Assistant State Counsel is therefore of the view that the judgment handed 
down by the Tribunal Administrativo e Fiscal do Porto is not vitiated by any error 
of assessment. 
Brief summary of the basis for the reference 
24 The referring court wishes to ascertain whether the restriction on the right to 
deduct VAT is compatible with the VAT deductibility rules laid down in the Sixth 
Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), in so far as it 
does not allow the deduction of the tax borne by the appellant in respect of 
consultancy services connected with a market study with a view to the acquisition 
of shares, which did not materialise, and in respect of the payment to BCP of a 
commission for organising and putting together a bond loan, allegedly taken out 
with a view to integrating the financial structure of its affiliated companies, where 
that investment also failed to materialise and [the bond loan] was eventually 
transferred in full to Sonae SGPS S.A., the parent company of the group. 
25 The referring court cites judgments of the Court of Justice which dealt with the 
treatment of shares for VAT purposes, namely Polysar (C-60/90, 
EU:C:1991:268), Harnas & Helm (C-80/95, EU:C:1997:56) and Portugal 
Telecom (C-496/11, EU:C:2012:557). 
SONAECOM 
 
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26 The Supremo Tribunal Administrativo considers that, notwithstanding the case-
law cited above, in which the Court of Justice of the EU ruled on issues that were 
similar, but not identical, it is not aware of any decisions in which the Court of 
Justice of the European Union gave a ruling on transactions with the specific 
aspects of the transactions at issue in the main proceedings, in which the 
acquisition of shares connected with the market study services procured did not 
materialise and in which the bond loan taken out for the purpose of integrating the 
financial structure of its affiliated companies was eventually transferred to the 
parent company of the group, because those investments did not materialise. 
27 The referring court also considers that, having regard to the principle that national 
law must be interpreted in conformity with EU law, it is necessary to submit a 
request for a preliminary ruling to the Court of Justice of the European Union.