62021CC0098
OPINION OF ADVOCATE GENERAL
PITRUZZELLA
delivered on 3 March 2022 (
1
)
Case C‑98/21
Finanzamt R
v
W-GmbH
(Request for a preliminary rulingfrom the Bundesfinanzhof (Federal Finance Court, Germany))
(Reference for a preliminary ruling – Value added tax (VAT) – Deductions – Intervention by a holding company in the operations of its subsidiaries – Activities of subsidiaries largely tax-exempt – General costs – Abusive practices)
1.
This request for a preliminary ruling, lodged by the Bundesfinanzhof (Federal Finance Court, Germany), essentially concerns certain aspects relating to the possibilities for deduction of VAT by a holding company.
2.
In general, holding companies are companies that hold all or part of the capital of other companies, which may have as their object different economic sectors or different stages of the same production process. In terms of the activities carried out, it is customary to distinguish a ‘pure holding company’, where the activity is limited to the acquisition and holding of company shares and to the exercise of the corresponding shareholder rights, from a ‘mixed holding company’, which combines that activity with its own production or trading activity.
3.
The European legal framework governing VAT – namely Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (‘the VAT Directive’) – (
2
) does not lay down specific provisions regarding holding companies. The legal regime applicable to companies of this kind has therefore been shaped over time by various judgments of the Court of Justice. Nevertheless, the subject continues to raise questions because of the number and complexity of factual situations that arise in practice and the difficulties encountered in bringing those situations together into a single system.
4.
The present case concerns the right of W-GmbH (‘W’ or ‘the appellant’) – a mixed holding company owning the controlling stake in the companies X-KG and Y-KG (‘the subsidiaries’), for which it also provides administrative and accounting services in return for payment – to deduct input VAT paid on the purchase of goods and services intended, by way of a shareholder’s contribution, for the benefit of its subsidiaries, in respect of the largely VAT-exempt business activities carried out by those companies.
5.
The Court of Justice is being asked to clarify whether Article 168(a), read in conjunction with Article 167 of the VAT Directive, must be interpreted as meaning that this right of deduction exists.
6.
If that question is answered in the affirmative, the Court will also have to determine whether such a transaction can be regarded as abusive, in view of the fact that the subsidiaries would not be entitled to deduct the input tax paid in full if they had purchased those goods and services directly instead of receiving them from the holding company.
I. Legal framework
A.
European Union law
7.
Article 2(1) of the VAT Directive provides as follows:
‘The following transactions shall be subject to VAT:
(a)
the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
…
(c)
the supply of services for consideration within the territory of a Member State by a taxable person acting as such.
…’
8.
Article 9(1) of that directive provides as follows:
‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’
9.
In accordance with Article 167 of that directive, a ‘right of deduction shall arise at the time the deductible tax becomes chargeable’.
10.
Article 168 of the directive provides as follows:
‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a)
the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
…’
B.
German law
11.
Paragraph 2 of the Umsatzsteuergesetz (Law on Turnover Tax) of 21 February 2005 (
3
) (‘the UStG’) states as follows:
‘1.   A trader is any person who independently carries out a commercial or professional activity. An undertaking comprises the whole of a trader’s commercial or professional activity. A commercial or professional activity shall mean any permanent activity carried out for the purpose of obtaining income, even where there is no intention to make a profit or a group of persons carries out its activities only in relation to its members.
2.   A commercial or professional activity is not exercised independently:
(1)
if natural persons are, individually or as a group, integrated in an undertaking in such a way that they are required to follow the instructions of the trader,
(2)
if, in the light of the overall actual circumstances, a legal entity is financially, economically and organisationally integrated into the undertaking of the controlling company (tax group). The effects of the tax group are limited to internal supplies between the constituent parts of the undertaking located in the country. These constituent parts are to be treated as a single undertaking. …’
12.
Paragraph 15 of the UStG, headed ‘Deduction of input tax’, is worded as follows:
‘(1)   A trader may deduct the following as input tax:
1.
the tax lawfully payable on goods and services provided to his or her business by another trader. …’
13.
Paragraph 42 of the Abgabenordnung (Tax Code), (
4
) in the version applicable to the dispute in the main proceedings (‘the AO’), provides that:
‘(1)   It shall not be possible to circumvent tax legislation by abusing arrangements that are possible under the law. Where the conditions set by a provision of tax law to prevent tax avoidance are satisfied, the legal consequences shall be determined under that provision. If not specified, tax shall, in the event of abuse within the meaning of subparagraph 2, be charged to the same extent as if a loyal arrangement appropriate to the economic transactions concerned had been used.
(2)   An abuse shall exist where an inappropriate loyal arrangement is selected which, in comparison with an appropriate arrangement, leads to a tax advantage unintended by law for the taxable person or a third party. This shall not apply where the taxable person demonstrates non-tax reasons for the arrangement selected which are relevant in view of the overall situation.’
II. The facts giving rise to the dispute, the main proceedings and the questions referred
14.
W is a limited liability company the activity of which consists in the purchase, management and re-utilisation of properties, as well as project planning and the renovation and preparation of building projects.
15.
In 2013, W held shares in X-KG and Y-KG, both of which were established as limited partnerships with a limited liability company as general partner (GmbH & Co. KG), involved in the construction of properties and the selling of individual dwelling units predominantly exempt from value added tax.
16.
More specifically, during the year at issue, the shareholders of X-KG were Z-KG, which held 6% of its shares, and W, which held 94% of its shares. On 31 January 2013, it was agreed that Z-KG would pay X-KG a premium of EUR 600000 as a shareholder’s contribution and that W would provide services free of charge worth EUR 9.4 million for two building projects undertaken by the subsidiary X-KG. Specifically, W was to provide X-KG with planning services for energy supply, heat insulation and network connection, architectural services, general contractor services, materials fitting-out and marketing services, as well as structural studies, partly using its own staff and equipment and partly by procuring goods and services from other companies.
17.
On the same day, W and X-KG concluded a further agreement, whereby the former would supply accounting and management services to the latter in connection with the two building projects referred to above in return for payment. Those services included the recruitment and dismissal of staff, the purchase of equipment, and the preparation of accounting records and tax returns and filing with the tax authorities. Those accounting and management services expressly excluded services to be supplied by the appellant by way of a shareholder’s contribution.
18.
Furthermore, in 2013 W held 89.64% of the shares in Y-KG, with the remainder being held by P I GmbH. On 10 April 2013, it was agreed that P I GmbH would pay Y-KG a premium of EUR 3.5 million and that W would provide services – similar to those described in point 16 of this Opinion – free of charge worth EUR 30.29 million in connection with a building project of Y-KG. On the same day, W and Y-KG also concluded an agreement whereby the former would provide accounting and management services for the latter similar to those described in point 17 above in exchange for payment.
19.
In its VAT returns for 2013, W made a deduction in full of the VAT paid on its taxable transactions. Following a tax audit, the German tax authorities determined, however, that the shareholder’s contributions made by W to X-KG and Y-KG must be classified as non-taxable activities, as they did not serve to earn income under the Law on Turnover Tax and could not therefore be classified as a business activity of the holding company. The input VAT amounts paid in relation to these activities were not therefore deductible.
20.
After its administrative complaint was rejected, W brought an action before the Niedersächsisches Finanzgericht (Finance Court, Lower Saxony, Germany), which upheld that action in a judgment of 19 April 2018. According to that court, W could deduct the input value added tax in full, because the supply of accounting and management services by W to X-KG and Y-KG involved direct or indirect involvement in the management of those companies in exchange for payment. As a result, the supply of services in kind as a shareholder’s contribution would also come within the commercial activity of active management of shareholdings. The court also held that there were grounds outside of the scope of tax law that warranted the chosen arrangement for the transaction in question.
21.
The Finanzamt (Tax Office, Germany) lodged an appeal (Revision) against that decision before the referring court, the Bundesfinanzhof (Federal Finance Court), claiming the following in support of that action: (i) the disputed services – namely those linked to the shareholder’s contributions in kind provided to the subsidiaries – to be distinguished from the management and accounting services supplied in exchange for payment, are not remunerated and do not therefore constitute an exchange; (ii) the operations carried out by W would, in any event, constitute an abuse of the VAT deduction rules.
22.
In the request for a preliminary ruling, the Bundesfinanzhof (Federal Finance Court) notes, first of all, that W and its subsidiaries do not form a ‘tax group’ within the meaning of Paragraph 2(2) of the UStG, so that those companies cannot be regarded as a single undertaking.
23.
The referring court then observes that because W provided accounting and management services to its subsidiaries in exchange for payment, it is, in principle, despite its capacity as a holding company, able to obtain a deduction in full of the input tax paid in respect of those services. On the basis of the case-law of the Court of Justice, the referring court then holds that such a right to deduction arises either where the costs relate to a particular input transaction that has an immediate and direct link to output transactions giving rise to the right to deduction or where those costs are part of the company’s general costs and are, as such, components of the price of the goods or services that it supplies.
24.
However, the Bundesfinanzhof (Federal Finance Court) considers it questionable whether the services passed on to X-KG and Y-KG as shareholder’s contributions by W have an immediate and direct link to the taxable services provided by that company, and thus whether they can be considered general costs, in so far as those services were in fact instrumental, not to the economic activities of the holding company, but to the performance of the largely tax-exempt activities of its subsidiaries.
25.
Second, the referring court asks – should the Court take the view that the tax paid by W on these taxable transactions is theoretically deductible under the VAT Directive – whether the involvement of a parent company in the purchase of services for a subsidiary in order to deduct input tax, where the subsidiary is not entitled to such a deduction, constitutes circumvention of the VAT rules.
26.
It points out, in that regard, that the assessment of whether such an abuse exists requires a factual appraisal of the circumstances of the individual case, aimed at ascertaining whether there are non-tax reasons for the contested transaction and that, under national law, that factual appraisal is carried out by the tax court, and the corresponding judgment is binding on the Bundesfinanzhof (Federal Finance Court). Since, therefore, in the main proceedings, the Niedersächsisches Finanzgericht (Finance Court, Lower Saxony), held that there were grounds falling outside of the scope of tax law which supported the transactions carried out by W, the referring court asks whether the existence of those reasons precludes a finding of abuse of rights.
27.
Lastly, the referring court observes that if a transaction of this kind were not to be considered an abuse of rights, there is a risk that this could legitimise any involvement of a holding company in the purchases of its subsidiaries for the purpose of obtaining a right to deduct VAT to which those subsidiaries would not have been entitled in the case of a direct purchase.
28.
Accordingly, the Bundesfinanzhof (Federal Finance Court) stayed the proceedings and referred the following questions to the Court for a preliminary ruling:
‘(1)
Under circumstances such as those in the main proceedings, is Article 168(a) in conjunction with Article 167 of [the VAT Directive] to be interpreted in such a way that a managing holding that supplies taxable output services for subsidiaries is entitled to deduction, also for services that it obtains from third parties and contributes to the subsidiaries in return for the grant of a share in the general profit, even though the obtained inputs are not directly and immediately linked to the holding’s own transactions but instead to the (largely) tax-exempt activities of the subsidiaries, the obtained input services are not included in the price of the taxable transactions (supplied to the subsidiaries), and they do not form part of the general cost components of the holding’s own economic activity?
(2)
If Question 1 is answered in the affirmative: Does it constitute abuse of rights in the sense of the case-law of the Court of Justice of the European Union, if a managing holding is involved as an ‘intermediary’ in obtaining services for subsidiaries in such a way that it obtains services itself for which the subsidiaries would have no entitlement to deduction if services were obtained directly, contributes these services to the subsidiaries in return for participation in its profit, and then claims full deduction on the basis of the inputs on the grounds of its position as a managing holding; or can acting as an intermediary in this way be justified on grounds that fall outside the scope of tax law, even though full deduction is in itself in conflict with the system and would result in a competitive advantage for holding structures over single-tier companies?’
III. Main arguments of the parties
29.
W, the German Government and the Commission submitted observations in the written procedure before the Court.
30.
In its observations, W states, first of all, that the transactions described above are supported by grounds falling outside of the scope of tax law: (i) first, because the implementation of the projects through the subsidiaries makes it possible to limit the liability connected with the decontamination of the sites of the construction projects (in the present case, these are military buildings contaminated by explosive munitions); (ii) second, because the payment of a contribution in kind, rather than in cash, provides better protection for W from potential actions by creditors of the subsidiaries or a court-appointed administrator, since it would make sense for those latter parties to demand the services that are the subject of that contribution only in the event that the construction projects are continued, but this would be highly unlikely if the subsidiaries were insolvent; (iii) third, because centralising the design and procurement activities within the holding company generates efficiency gains and economic advantages in terms of reducing procurement costs; (iv) last, because this structure preserves the confidentiality of profit margins, since a purchaser would only have a right to information vis-à-vis the contractual parties and, therefore, the subsidiaries and not the parent company W.
31.
On that basis, in relation to the first question referred, W asserts that it is entitled to the deduction because it was acting solely as a taxable person, involving itself in the management of its subsidiaries by providing administrative and accounting services in exchange for payment. It considers that the costs of services acquired by it in respect of contributions in kind made to its subsidiaries entitle it to deduct input tax in full, because those costs form part of its general costs, in that they contribute to strengthening its economic activity as a whole. W also contests the assertion that it was denied the right to deduct input tax on account of the partially exempt outputs provided by its subsidiaries, since they are separate taxable persons and the inputs do not have an immediate and direct link to the specific outputs provided by its subsidiaries.
32.
As regards the second question referred, W considers that the performance of the transactions in question does not constitute an abuse of rights, since it is justified by the grounds falling outside of the scope of tax law described in point 30 of this Opinion. On this point, W also points out that the advantage gained by a multi-tier organisation including a holding company, as compared to a single-tier organisation, would merely represent freedom of organisation and not abuse.
33.
Using largely overlapping arguments, the German Government and the Commission take the view that the first question should be answered in the negative. Given that the right to deduct VAT laid down in Article 168(a) of the VAT Directive presumes a direct and immediate link between, on the one hand, a specific input transaction and, on the other hand, one or more output transactions generating a right to deduction or the taxable person’s economic activity as a whole, in the present case, the input transactions do not have an immediate and direct link with the economic activities of the holding company. Although it is true that accounting and management services supplied in exchange for payment constitute a taxable transaction, in the present case the input services purchased and supplied free of charge to the subsidiaries do not constitute component elements of the price of those services. On the other hand, under the VAT Directive, a taxable person is authorised to deduct the VAT due or paid in respect of goods and services supplied to it by another taxable person only in so far as they are used for the purposes of its own taxable transactions. Since, in the present case, those goods and services were used to carry out the output transactions of the subsidiaries, most of which are subject to an exemption regime, there is no right to deduct.
34.
As regards the second question referred, the German Government is of the view – in the unlikely event that the answer to the first question is in the affirmative – that the transaction in any event constitutes an abuse, because it is primarily aimed at pursuing a tax advantage contrary to the objective pursued by the relevant provisions of the VAT Directive. The Commission did not consider it necessary to provide a reply on this issue.
IV. Legal analysis
A.
Preliminary remarks
35.
In order to provide a suggested answer to the questions referred for a preliminary ruling, in the following paragraphs I will focus on the conditions that must be met to enable a holding company to benefit from the right to deduct VAT, and those that can be used to establish that an abuse of rights has occurred. On the basis of the file available to the Court, I will then provide guidance to enable the national court to assess whether those conditions are met in the present case.
36.
It should in any case be understood that it is for the referring court to assess whether those conditions are met in this case, taking account of all the circumstances surrounding the transactions at issue. (
5
) According to settled case-law, the system of cooperation established by Article 267 TFEU is based on a clear division of responsibilities between the national courts and the Court of Justice. In proceedings brought on the basis of that article, the reconstruction of the facts and the interpretation of provisions of national law is a matter for the courts of the Member States. However, the Court does have jurisdiction to provide the national court with all the guidance as to the interpretation of EU law and the information, taken from the documents in the main proceedings and from the observations, both written and oral, submitted to it, necessary to enable that national court to reach a decision. (
6
)
B.
First question referred
37.
By its first question, the referring court asks whether, in circumstances such as those of the main proceedings, Article 168(a), read in conjunction with Article 167, of the VAT Directive must be interpreted as meaning that a holding company that undertakes taxable output transactions for subsidiaries is entitled to deduction of input tax payable on services that it obtains from third parties and contributes to the subsidiaries in return for the grant of a share in the general profit, even though the obtained inputs: (i) are not directly and immediately linked to the holding’s own transactions but instead to the (largely) tax-exempt activities of the subsidiaries; (ii) are not included in the price of the taxable transactions (supplied to the subsidiaries), and (iii) do not form part of the general cost components of the holding’s own economic activity.
38.
To answer this question, I note that, according to settled case-law, under Article 168 of the VAT Directive, in order to have a right of deduction, it is necessary, first, that the person concerned be a ‘taxable person’, within the meaning of that directive, and, second, that the goods or services relied on to confer entitlement to that right be used by the taxable person for the purposes of his or her taxed output transactions. (
7
) I will elaborate on each of these assumptions in the following paragraphs.
1. W’s status as a taxable person
39.
According to Article 9 of the VAT Directive, a ‘taxable person’ is any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity. Furthermore, it is clear from that article that the concept of economic activity encompasses any activity of producers, traders or persons supplying services and, more specifically, the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis. (
8
)
40.
According to settled case-law, a holding company does not have the status of taxable person within the meaning of Article 9 of the VAT Directive and, as a result, does not have the right to deduct tax, when it has as its sole purpose the acquisition of shares in other undertakings and does not involve itself directly or indirectly in the management of those undertakings. The mere acquisition and holding of shares in a company do not, in themselves, amount to an economic activity within the meaning of the VAT Directive, conferring on the holder the status of a taxable person, since such transactions cannot be regarded as the exploitation of property for the purpose of obtaining income therefrom on a continuing basis. Any dividend yielded by that holding or capital gain achieved on its sale is merely the result of ownership of the property. (
9
)
41.
That is not the case where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired, where that entails carrying out transactions which are subject to VAT. (
10
) Specifically, a mixed holding company that not only holds shares in companies, but also supplies remunerated services that are subject to VAT to those companies is accordingly a taxable person itself which is entitled, in principle, to deduction of input tax. (
11
) Such holding companies are usually classified as ‘management’ or ‘managing’ holding companies. (
12
)
42.
The Court has held that the term ‘involvement of a holding company in the management of its subsidiary’ must be understood as covering all transactions constituting an economic activity, within the meaning of the VAT Directive, performed by the holding company for the benefit of its subsidiary. (
13
) Although the examples of activities that can be classified as such involvement do not constitute an exhaustive list, it is clear that this includes the provision of administrative, financial, commercial and technical services. (
14
)
43.
In the present case, the case file available to the Court shows that W provided its subsidiaries with administrative and accounting services subject to VAT (as mentioned above, these were services relating to the recruitment and dismissal of staff, the purchase of equipment, the preparation of accounting records and tax returns). It can therefore certainly be asserted that it exercised an economic activity by involving itself in the management of its subsidiaries, carrying out transactions subject to VAT, and must therefore be regarded as a taxable person within the meaning of Article 9(1) of the VAT Directive.
2. The link between the goods or services relied on by the taxable person to confer entitlement to the right of deduction and his or her taxable output transactions
44.
As mentioned above, in order for the tax to be deductible, in addition to the purchaser being a taxable person, there must also be a link between the input taxable transactions and the economic activity of the purchaser. In other words, these transactions must be genuinely connected to the exercise of the business.
45.
It follows from Article 168 of the VAT Directive that, in so far as a taxable person uses goods or services for the purposes of his or her taxed transactions, he or she is entitled to deduct the VAT paid or payable in respect of those goods or services. (
15
)
46.
In accordance with settled case-law, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is necessary before the taxable person is entitled to deduct input VAT. (
16
)
47.
However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the services in question are part of his or her general costs. Indeed, such costs do have a direct and immediate link with the taxable person’s economic activity as a whole, generally speaking. (
17
)
48.
In either case, the cost of the input services must be incorporated either in the cost of particular output transactions or in the cost of goods or services supplied by the taxable person as part of his or her economic activities. (
18
)
49.
On the other hand, where goods or services acquired by a taxable person are connected to transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted. (
19
)
50.
The Court has also stated that, in order to assess whether the conditions set out above have been met, the exclusive reason for the transaction at issue must also be taken into account, since that reason must be regarded as a criterion for determining the objective content thereof. Where it is clear that a transaction has not been performed for the purposes of the taxable activities of a taxable person, that transaction cannot be regarded as having a direct and immediate link with those activities, even if that transaction would, in the light of its objective content, be subject to VAT. (
20
)
51.
In the present case, it is apparent from the file before the Court that the goods and services that were the subject of W’s taxable transactions were not used, within the meaning of Article 168 of the VAT Directive, for the purposes of its taxable transactions but rather, having regard to their ‘exclusive purpose’, were used in the context of providing a shareholder’s contribution to its two subsidiaries, naturally free of charge. A contribution by a holding company to companies in which it holds shares – whether in cash or in kind – is by its very nature designed to facilitate the receipt of dividends.
52.
In those circumstances, the output transaction of making a contribution in kind to subsidiaries must not be regarded as an ‘economic activity’ within the meaning of Article 9(1) of that same directive. As has been noted above, such activity concerns the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis, a concept that, according to settled case-law, does not include the mere receipt of dividends. It follows that the costs incurred in purchasing goods and services to be used in providing the contribution to subsidiaries cannot be deducted, because they are intended for the performance of an activity that, for W, is not economic in nature.
53.
Moreover, on the basis of the description given in the order for reference, it is clear that the taxable transactions in respect of which the right to deduct is being challenged (expenditure incurred in respect of the services of architects, structural calculations, planning, general contractors, fitting-out and marketing) had an immediate and direct link with the output transactions carried out by the subsidiaries in the context of their business of constructing buildings and selling individual dwelling units. This link is objectively discernible, given the nature of the activities in question, and is not precluded by the fact that the services purchased by W were then transferred by W to the subsidiaries, and indeed appears to be confirmed by that fact.
54.
The Court can therefore rule out the possibility that the abovementioned taxable transactions had an immediate and direct link with W’s output transactions subject to VAT, which were represented by the supply of accounting and management services to the subsidiaries in exchange for payment, and that the cost of those taxable transactions was incorporated into the price of those administration and accounting services.
55.
All that remains, therefore, is to determine whether the transactions in question can be said to come within the scope of W’s general costs. As far as I am aware, there is no common definition of ‘general costs’ in the Court’s precedents, but rather only a few decisions in which there is a reference to the concept of general costs in particular circumstances.
56.
Specifically, according to settled case-law, and as also mentioned extensively by W in its observations, expenditure incurred by a holding company involved in the management of a subsidiary in respect of the various services it has purchased in connection with the acquisition of a shareholding in that subsidiary forms part of the taxable person’s general costs and is, as such, a cost component of its products. Costs of this nature therefore have a direct and immediate link with the holding company’s economic activity as a whole. (
21
)
57.
In my view, the case at issue in the main proceedings clearly differs from those dealt with in the case-law cited above. Indeed, those cases related to expenses (such as legal or financial consulting) connected with the acquisition of shareholdings in subsidiaries, from which the holding company actually benefited. Those expenses, therefore, appear to have an immediate and direct link with the overall economic activity of the managing holding company providing services subject to VAT to the subsidiaries, since they constitute the necessary precondition for the shareholding to be acquired and thus for the economic activity of the holding company to be carried out.
58.
Conversely, in the present case, the input expenses incurred by W do not have a direct and immediate relationship with the business activity of that company, since – as has already been explained in the preceding paragraphs – they constitute the basis for a contribution ‘in kind’ made to the subsidiaries. These are not, therefore, expenses that the holding company needs to incur to acquire shares, but expenses that themselves constitute the basis for the contribution made to the subsidiaries intended to facilitate the performance of the economic activity of those subsidiaries, most of which is largely tax-exempt. It is therefore my view that this case-law cannot be relied upon to recognise a right of deduction for W.
59.
On the other hand, I consider it more useful, for the purposes of resolving the present case, that a recent judgment of the Court of Justice denied a right to deduct input VAT paid by a holding company in a case where the services purchased (in order to benefit from a bond loan) had actually been used to carry out an exempt transaction (the provision of a loan to the parent company). (
22
) Indeed, it follows from that judgment that there is a need to assess the actual purpose of the taxable transaction on which the input VAT was paid, with a right of deduction being excluded where that transaction is linked to the performance of an exempt output transaction. It is therefore essential to emphasise that in the present case, in the light of what has been set out in point 53 above, the transactions in respect of which the right to deduction is sought had in fact an immediate and direct link with the subsidiaries’ exempt activities, with the result that the right to deduction should be excluded.
60.
As further confirmation of the solution reached, reference can also be made to the case-law of the Court of Justice which, although not dealing specifically with holding companies, has in any event provided – contrary to what was alleged by W in its observations – generally valid rules for the deduction of VAT and therefore also for the case at hand.
61.
The fact that the expenditure incurred by the taxable person was incurred not for the purposes of his or her own taxable transactions but for those of a transaction carried out by a third party would be such as to break the direct and immediate link that must exist between the acquisition of input services and the output transaction, thus preventing the taxable person from proceeding to deduct in full the associated VAT. (
23
) That principle is applicable to the case in the main proceedings, in view of the different legal personality of the subsidiaries as compared with the holding company.
62.
Finally, the observation made by the Bundesfinanzhof (Federal Finance Court) in paragraph 59 of the order for reference does not appear to me to be irrelevant: if the Court were to reason along the lines proposed by W and upheld by the court at first instance, this would legitimise, in situations where there is involvement by a holding company in subsidiary companies carrying on an exempt activity, the general intervention by the former in the purchase of goods and services used for the activities of the latter, with the holding company thus having a full right of deduction in disregard of the principle of the neutrality of VAT.
63.
In the light of the above, I believe that the first question should be answered as follows: ‘Article 168(a), read in conjunction with Article 167, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a managing holding that provides taxable output services to subsidiaries is not entitled to deduct the VAT paid for services that it obtains from third parties and provides to the subsidiaries in return for a share in the general profit, where the input services obtained are not directly and immediately linked to the holding’s own transactions but instead to the (largely) tax-exempt activities of the subsidiaries, those obtained input services cannot be included in the price of the taxable transactions (in the form of services rendered to the subsidiaries), and do not form part of the general cost components of the holding’s own economic activity.’
C.
Second question referred
64.
By its second question, the referring court asks – if the first question were to be answered in the affirmative – whether it constitutes an abuse of rights in the sense of the case-law of the Court if a managing holding is involved as an ‘intermediary’ in obtaining services for subsidiaries in such a way that it obtains services itself for which the subsidiaries would have no entitlement to deduction if the services were obtained directly, provides those services to the subsidiaries in return for a share in their profit, and then claims full deduction on the basis of the obtained input services on the grounds of its position as a managing holding; or whether acting as an intermediary in this way is justified on grounds that fall outside the scope of tax law, even though full deduction is in itself in conflict with the system and would result in a competitive advantage for holding structures over single-tier companies.
65.
For the reasons set out in the preceding paragraphs, I consider that the answer to the first question referred for a preliminary ruling must be in the negative and that, therefore, in the present case, W has not correctly applied the conditions laid down by the relevant provisions of the VAT Directive. The question of possible abuse of rights does not therefore require an answer. However, I think it would be useful to make a few remarks in response to the second question, should the Court come to a different conclusion.
66.
As we know, preventing possible tax evasion, avoidance and abuse is an objective recognised and encouraged by the European Union’s VAT Directive. (
24
)
67.
The effect of the principle of preventing abuses of rights is therefore to prohibit wholly artificial arrangements which do not reflect economic reality and are set up with the sole aim of obtaining a tax advantage. (
25
) That principle, in relation to VAT, is not contained in a specific provision of EU law but is based on the Court’s settled case-law, according to which the refusal of a right or an advantage on account of abusive or fraudulent acts is simply the consequence of the finding that, in the event of abuse of rights, the objective conditions required in order to obtain the advantage sought are not, in fact, met. (
26
)
68.
In order for it to be found that an abusive practice exists, the tax authority of a Member State must demonstrate that two conditions are met. First, it must be apparent that the transactions concerned, notwithstanding formal application of the conditions laid down by the relevant provisions of the VAT Directive and of national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions (‘the objective condition’). Second, it must also be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage (‘the subjective condition’). (
27
)
69.
As already mentioned, it is for the national court to determine whether the elements constituting abusive conduct are present in the main proceedings. However, the Court, when giving a preliminary ruling, may, where appropriate, provide clarification designed to give the national court guidance in its interpretation. (
28
)
1. The objective condition characterising an abuse of rights
70.
As regards the objective condition characterising an abuse of rights, it should first be borne in mind that the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his or her economic activities. Consequently, the rules in question are intended to ensure neutrality of taxation only for economic activities subject to VAT. (
29
)
71.
On the basis of the information stated in the request for a preliminary ruling, I am of the view that the tax advantage conferred by the deduction on the appellant is contrary to the above objective. In fact, given that the goods and services purchased as inputs by W are used for the economic activity of the subsidiaries, W’s intervention has made it possible to benefit from a deduction that is not matched by any output taxation, either in relation to W itself, since the supply of the services in question to the subsidiaries is a non-taxable activity, or in relation to the subsidiaries, whose activity is largely tax-exempt.
72.
This situation therefore appears to be contrary to the aim of the common system of VAT, which, as has been said, is to ensure the neutrality of taxation only for the taxable economic activities referred to in Article 9 of the VAT Directive.
73.
This is confirmed by the fact that if the Court were to view this situation in terms of the corporate group, the tax benefit deriving from the full deduction of the input VAT paid by W would not have been achieved if the transaction had been constructed differently.
74.
Let us assume, first, that the appellant had transferred the goods and services acquired as inputs to the subsidiaries in exchange for payment. In that case, the transfer would have been subject to VAT, with the consequence that, on the one hand, W would have been able to deduct the tax on the taxable transactions, as these were purchases of goods and services used for the purposes of its taxable transactions (namely, supplies to subsidiaries in exchange for payment). On the other hand, the tax paid by the subsidiaries would not have been deductible, or not in its entirety, in view of the fact that they carried out activities that were predominantly exempt.
75.
Similarly, a full right of deduction would not have applied if W and its subsidiaries had formed a VAT group, within the meaning of Article 11 of the VAT Directive. Indeed, in such a case, because a VAT group is considered to be a single taxable person, (
30
) the right to deduct input tax is determined solely on the basis of the transactions of the group – and therefore also the subsidiaries – with third parties. (
31
) The goods and services acquired as inputs by W should therefore have been linked – in the context of its business activity as a whole – with the largely exempt services relating to the construction and sale of housing carried out by the subsidiaries, with the result that deduction of that tax would have been excluded or limited.
76.
Let us suppose, then, that W had, like the other persons holding shares in the subsidiaries, paid its own contributions in cash, thereby financing the acquisition of goods and services to be carried out directly by those subsidiaries. In this case also, the tax paid by the subsidiaries on the goods and services acquired would not be deductible, or not in its entirety, by reason of the fact that they carried out predominantly exempt activities.
77.
In the light of the above, and without prejudice to the final assessment of the national court, I consider that a transaction such as that at issue in the main proceedings is contrary to the objective of Articles 167 and 168 of the VAT Directive and, therefore, that the objective condition characterising the existence of an abuse of rights can be regarded as fulfilled.
2. On the subjective condition characterising an abuse of rights
78.
As regards the ‘subjective condition’ characterising the existence of an abuse of rights in relation to VAT, as stated above, according to the case-law of the Court, it must be apparent on the basis of a series of objective elements that the transactions are essentially aimed at obtaining a tax advantage.
79.
W has alleged a number of non-tax reasons – set out in point 30 above – that it believes justify the arrangement used for the transactions at issue in the main proceedings. Those reasons were endorsed by the national court at first instance, and, according to the order for reference, the judgment of that court on this point is binding on the Bundesfinanzhof (Federal Finance Court). That court therefore wonders whether the existence of non-tax reasons precludes a finding of an abuse of rights in a case such as that at issue in the main proceedings.
80.
In this respect, I emphasise that the case-law of the Court, despite using non-uniform wording, (
32
) does not require it to be demonstrated that the attainment of a tax advantage constitutes the sole objective of the transactions at issue. Although transactions that exclusively pursue that objective may satisfy the requirement resulting from that case-law, the Court has made it clear that there can also be a finding of an abusive practice when the accrual of a tax advantage constitutes the principal (but not exclusive) aim of the transactions at issue. (
33
) In relation to direct taxes – where the prohibition on abuses of rights is governed by specific rules (
34
) – the Court has asserted that a transaction based on several objectives, which may also include tax considerations, can constitute a valid commercial reason provided, however, that those considerations are not predominant in the context of the proposed transaction. (
35
) It follows that the presence of commercial reasons outside the tax system does not in itself preclude the existence of an abuse of rights, provided that the predominant purpose of the transaction can be said to be that of obtaining a tax advantage.
81.
On that point, the Court has also held that the essential purpose of contested transactions can be identified as the obtaining of a tax advantage if these transactions are not carried out in the context of normal commercial operations (
36
) and thus do not correspond with economic and commercial realities. (
37
)
82.
It is, of course, for the national court to determine whether that condition is met in the main proceedings by establishing the actual content and significance of the transactions. It must therefore carry out a careful assessment of the ‘economic reasons’ underlying the transactions entered into, to verify whether they are justifiable in objective terms, on the basis of common business practice, or whether they reflect economic ‘abnormalities’. In particular, the national court may take account of the potentially purely artificial nature of the transactions and the links of a legal, economic and/or personal nature between the operators involved in the plan to reduce the tax burden, (
38
) those aspects being such as to demonstrate that the accrual of a tax advantage constitutes the principal aim pursued, notwithstanding the possible existence, in addition, of economic objectives arising from, for example, marketing, organisation or guarantee considerations. (
39
)
83.
On the other hand, I regard as irrelevant – for the purposes of identifying an abusive practice – the competitive advantage, a factor stressed in the second question asked by the Bundesfinanzhof (Federal Finance Court), enjoyed by structured transactions involving holding companies compared with those involving single-tier companies. Freedom of organisation may legitimately be exercised in order to obtain an advantage, including a tax advantage, over competing undertakings, provided that the conditions described above characterising an abusive practice are not met.
84.
In the light of the above, if, contrary to the view expressed in the preceding paragraphs, the Court wishes to answer the first question referred for a preliminary ruling in the affirmative, I consider that the second question referred should be answered as follows: ‘The fact that a managing holding is involved as an ‘intermediary’ in obtaining services for subsidiaries in such a way that it obtains services itself for which the subsidiaries would have no entitlement to deduction if the services were obtained directly, and provides those services to the subsidiaries in return for a share in their profit and, lastly, claims full deduction on the basis of the obtained input services on the grounds of its position as a managing holding, generates a tax advantage the grant of which is contrary to the objective pursued by the provisions of the VAT Directive on deduction. Such a transaction constitutes an abuse of rights, even if it can be justified by reasons extraneous to tax law, where it appears that the essential aim of the transaction is to obtain a tax advantage.’
V. Conclusions
85.
On the basis of all the points set out above, I propose that the Court’s answers to the questions referred for a preliminary ruling by the Bundesfinanzhof (Federal Finance Court, Germany) should be as follows:
(1)
Article 168(a) in conjunction with Article 167 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a managing holding that provides taxable output services to subsidiaries is not entitled to deduct the VAT paid for services that it obtains from third parties and provides to the subsidiaries in return for a share in the general profit, where the obtained input services are not directly and immediately linked to the holding’s own transactions but instead to the (largely) tax-exempt activities of the subsidiaries, those obtained input services cannot be included in the price of the taxable transactions (in the form of services rendered to the subsidiaries), and do not form part of the general cost components of the holding’s own economic activity.
(2)
The fact that a managing holding is involved as an ‘intermediary’ in obtaining services for subsidiaries in such a way that it obtains services itself for which the subsidiaries would have no entitlement to deduction if the services were obtained directly, and provides those services to the subsidiaries in return for a share in their profit and, lastly, claims full deduction on the basis of the obtained input services on the grounds of its position as a managing holding, generates a tax advantage the grant of which is contrary to the objective pursued by the provisions of the VAT Directive on deduction. Such a transaction constitutes an abuse of rights, even if it can be justified by reasons extraneous to tax law, where it appears that the essential aim of the transaction is to obtain a tax advantage.
(
1
)	Original language: Italian.
(
2
)	OJ 2006 L 347, p. 1.
(
3
)	BGBl. 2005 I, p. 386.
(
4
)	BGBl. 2002 I, p. 3866.
(
5
)	See, in relation to the right of deduction for holding companies, judgments of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 63 and the case-law cited), and of 1 October 2020, Vos Aannemingen (C‑405/19, EU:C:2020:785, paragraph 40). As regards the examination as to whether the conditions establishing an abusive practice are met, see judgments of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraphs 76 and 77), and of 17 December 2015, WebMindLicenses (C‑419/14, EU:C:2015:832, paragraph 34).
(
6
)	See, most recently, judgment of 18 November 2020, Syndicat CFTC (C‑463/19, EU:C:2020:932, paragraphs 29 and 67). To the same effect, see order of the President of the Court of Justice of 28 January 2015, Gimnasio Deportivo San Andrés (C‑688/13, EU:C:2015:46, paragraph 30 and the case-law cited), and judgment of 3 October 2019, Fonds du Logement de la Région de Bruxelles Capitale (C‑632/18, EU:C:2019:833, paragraph 48).
(
7
)	See judgment of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge (C‑316/18, EU:C:2019:559, paragraph 23 and the case-law cited).
(
8
)	See, to that effect, judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 29), and of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 27).
(
9
)	See, to that effect, first, judgment of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268, paragraphs 13 and 14). See also, in more recent case-law, judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 30); of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 30); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraphs 27 and 28); and of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 16).
(
10
)	See judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 31); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 29); and of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 17 and the case-law cited).
(
11
)	See, to that effect, judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 32); of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 22); and of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166, paragraph 31).
(
12
)	See Opinion of Advocate General Mengozzi in Larentia + Minervaand Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:212, point 31).
(
13
)	See, to that effect, judgment of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 32).
(
14
)	See, to that effect, judgment of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraphs 30 and 31 and the case-law cited).
(
15
)	See judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 36), and of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 21 and the case-law cited). It should be noted that although these judgments refer to Article 17 of 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, ‘the Sixth Directive’), the relevant provisions of the VAT Directive have an essentially identical scope to those of the Sixth Directive. For this reason, it has been held that the Court’s case-law on the Sixth Directive is also relevant for the interpretation of the VAT Directive (see judgment of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge, C‑316/18, EU:C:2019:559, paragraph 17).
(
16
)	See judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 41), and of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 26 and the case-law cited).
(
17
)	See judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 42), and of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 27 and the case-law cited).
(
18
)	See judgment of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge (C‑316/18, EU:C:2019:559, paragraph 27).
(
19
)	See judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 59 and the case-law cited).
(
20
)	See, to that effect, judgment of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 37).
(
21
)	See judgments of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraph 49); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 43 and the case-law cited); and of 16 July 2015, Larentia + MinervaandMarenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 33).
(
22
)	See judgment of 12 November 2020, Sonaecom (C‑42/19, EU:C:2020:913, paragraphs 67 and 68).
(
23
)	See judgment of 1 October 2020, Vos Aannemingen (C‑405/19, EU:C:2020:785, paragraph 45).
(
24
)	See judgments of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 71), and of 29 April 2004, Gemeente Leusden and Holin Groep (C‑487/01 and C‑7/02, EU:C:2004:263, paragraph 76).
(
25
)	See judgment of 22 May 2008, Ampliscientifica and Amplifin (C‑162/07, EU:C:2008:301, paragraph 28).
(
26
)	Judgment of 22 November 2017, Cussens and Others (C‑251/16, EU:C:2017:881, paragraph 32).
(
27
)	Judgments of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 86), and of 26 February 2019, T Danmark and Y Denmark (C‑116/16 and C‑117/16, EU:C:2019:135, paragraph 97).
(
28
)	Judgments of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraphs 76 and 77), and of 17 December 2015, WebMindLicenses (C‑419/14, EU:C:2015:832, paragraph 34).
(
29
)	Judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 78).
(
30
)	See, to that effect, judgments in Ampliscientifica and Amplifin (C‑162/07, EU:C:2008:301, paragraph 19), and in Skandia America Corp. (USA), filial Sverige (C‑7/13, EU:C:2014:2225, paragraph 29). See also Opinion of Advocate General Mengozzi in Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:212, points 46 to 50), in relation to the corresponding provisions of the Sixth Directive.
(
31
)	See also, to that effect, Communication from the Commission to the Council and the European Parliament on the VAT group option provided for in Article 11 of Council Directive 2006/112/EC on the common system of value added tax (COM(2009) 325 final, 2 July 2009, p. 11).
(
32
)	See, on this point, Opinion of Advocate General Bobek in Cussens and Others (C‑251/16, EU:C:2017:648, point 97).
(
33
)	See judgments of 21 February 2008, Part Service (C‑425/06, EU:C:2008:108, paragraph 45), and of 22 November 2017, Cussens and Others (C‑251/16, EU:C:2017:881, paragraph 53).
(
34
)	Without going through all the legislation introduced in this field at European level, we should mention Article 6 of Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market (OJ 2016 L 193, p. 1). According to that article, an abusive tax practice can be deemed to exist on condition that obtaining a tax advantage that defeats the object or purpose of the applicable tax law constitutes ‘one of the main purposes’ of the transaction. That transaction must, however, be ‘non-genuine’, and thus must not have been put into place ‘for valid commercial reasons which reflect economic reality’.
(
35
)	See judgment of 10 November 2011, FOGGIA-Sociedade Gestora de Participações Sociais (C‑126/10, EU:C:2011:718, paragraph 35). That judgment concerns the specific rules intended to prevent abuses laid down in Article 11(1)(a) of Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (OJ 1990 L 225, p. 1).
(
36
)	See judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraph 69).
(
37
)	See judgment of 20 June 2013, Newey (C‑653/11, EU:C:2013:409, paragraphs 44 and 45).
(
38
)	See judgment of 21 February 2006, Halifax and Others (C‑255/02, EU:C:2006:121, paragraphs 76 and 81).
(
39
)	Judgment of 21 February 2018, Part Service (C‑425/06, EU:C:2008:108, paragraph 62).