Empresa de Desenvolvimento Mineiro SGPS SA (EDM) v Fazenda Pública.
Date: 2004-04-29
47. As a preliminary point, it is appropriate to note that, although Article 4 of the Sixth Directive gives a very wide scope to VAT (see Case C-186/89 Van Tiem [1990] ECR I-4363, paragraph 17), only activities of an economic nature are covered by that provision (see Régie dauphinoise , paragraph 15).
48. Under Article 4(1) of the Sixth Directive, a taxable person means any person who independently carries on such economic activities. Economic activities are defined in Article 4(2) as encompassing all activities of producers, traders and persons supplying services, in particular the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis. That concept of ‘exploitation’ refers, in accordance with the requirements of the principle that the common system of VAT should be neutral, to all those transactions, whatever their legal form (see Van Tiem , cited above, paragraph 18, and Régie dauphinoise , paragraph 15).
49. In that regard, it follows from the Court’s consistent case-law that only payments which are the consideration for a transaction or an economic activity come within the scope of VAT and that such is not the case of those which arise simply from ownership of the asset (see Case C-333/91 Sofitam  [1993] ECR I-3513, paragraph 13, Régie dauphinoise , paragraph 17, and Floridienne and Berginvest , paragraph 26).
50. Furthermore, it follows from Article 2(1) of the Sixth Directive that a taxable person must act ‘as such’ in order for a transaction to be subject to VAT (see Régie dauphinoise , paragraph 15).
54. It is appropriate to point out in that regard that it follows from the Court’s case-law that, in order not to compromise the objective of neutrality which the common system of VAT guarantees, transactions outside the scope of the Sixth Directive which do not therefore give rise to a right to deduct must be excluded from the calculation of the deductible proportion referred to in Articles 17 and 19 of the Sixth Directive (see to that effect, among others, Sofitam , cited above, paragraphs 13 et 14, and Case C-16/00 Cibo Participations [2001] ECR I-6663, paragraph 44).
57. In that regard, it must be noted at the outset that under consistent case-law the mere acquisition and holding of shares in a company is not to be regarded as an economic activity within the meaning of the Sixth Directive, conferring on the holder the status of a taxable person. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by those holdings is merely the result of ownership of the property and is not the consideration for any economic activity within the meaning of that directive (see Harnas & Helm , paragraph 15, and Floridienne and Berginvest , paragraph 21). If such activities do not therefore in themselves constitute an economic activity within the meaning of that directive, the same must be true of activities consisting in the sale of such holdings (see Wellcome Trust , cited above, paragraph 33, and Case C-442/01 KapHag  [2003] ECR I-6851, paragraphs 38 and 40).
58. Likewise, the simple acquisition and the mere sale of other negotiable securities cannot amount to exploitation of an asset intended to produce revenue on a continuing basis, the only consideration for those transactions consisting of a possible profit on the sale of those securities.
59. Such transactions cannot as a rule constitute, by themselves, economic activities within the meaning of the Sixth Directive. Admittedly, it follows from point 5 of Article 13B(d) thereof that transactions affecting securities may come within the scope of VAT. However, the transactions covered by that provision are those which consist in drawing revenue on a continuing basis from activities which go beyond the compass of the simple acquisition and sale of securities, such as transactions carried out in the course of a business trading in securities.
60. It follows that an undertaking which pursues activities consisting in the simple sale of shares and other negotiable securities, such as holdings in investment funds, is to be regarded, so far as those activities are concerned, as confining itself to managing an investment portfolio in the same way as a private investor (see Wellcome Trust , cited above, paragraph 36).
61. It is important to observe in that regard that neither the scale of a share sale, nor the employment in connection with such a sale of consultancy undertakings, can constitute criteria for distinguishing between the activities of a private investor, which fall outside the scope of the Sixth Directive, and those of an investor whose transactions constitute an economic activity (see Wellcome Trust , paragraph 37).
62. Therefore, it must be held that activities which consist in the simple sale of shares and other negotiable securities, such as holdings in investment funds, do not constitute economic activities within the meaning of Article 4(2) of the Sixth Directive and, therefore, they do not come within the scope of that directive.
63. As regards the yield from placements in investment funds, it must be held that it does not constitute direct consideration for supplies of services consisting in making capital available for the benefit of a third party (see Régie dauphinoise , paragraphs 16 and 17). Like dividends, such yield cannot be regarded as the effective exchange for services rendered. Consequently, those placements do not constitute supplies of services ‘effected for consideration’, within the meaning of Article 2(1) of the Sixth Directive, and therefore do not come within the scope of VAT (see, to that effect, Case C-305/01 MKG-Kraftfahrzeuge-Factoring  [2003] ECR I-6729, paragraph 47).
65. On the other hand, in accordance with the Court’s case-law, interest received by a holding company in consideration of loans granted to companies in which it has shareholdings cannot be excluded from the scope of VAT, since that interest does not arise from the simple ownership of the asset, but is the consideration for making capital available for the benefit of a third party (see, to that effect, Régie dauphinoise , paragraph 17).
66. As regards the question whether, in such a situation, a holding company supplies that service in the capacity of a taxable person, the Court has held, at paragraph 18 of the judgment in Régie dauphinoise , that a person carrying out transactions which constitute the direct, continuous, and necessary extension of the person’s taxable activity, such as the receipt by a managing agent of interest resulting from the placements of monies received from clients in the course of managing those clients’ properties, acts in that capacity.
67. That is with stronger reason the case when the transactions concerned are carried out with a business or commercial purpose characterised by, in particular, the wish to maximise returns from capital invested.
68. It is clear that an undertaking acts thus if it uses funds forming part of its assets to supply services constituting an economic activity within the meaning of the Sixth Directive, such as the granting of interest-bearing loans by a holding company to companies in which it has shareholdings, whether those loans are granted as economic support to those companies or as placements of treasury surpluses or for other reasons.
69. Interest paid to an undertaking in consideration of bank deposits or placements in securities such as Treasury notes or certificates of deposit likewise cannot be excluded from the scope of VAT, since the interest paid does not arise from the simple ownership of the asset but constitutes the consideration for making capital available for the benefit of a third party (see, to that effect, Régie dauphinoise , paragraph 17). It follows from the preceding paragraph that an undertaking acts as a taxable person if it thus uses funds forming part of its assets.
70. Therefore, it must be held that the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of the Sixth Directive.
The concept of transactions exempted from VAT
76. As the Court held at paragraph 21 of the judgment in Régie dauphinoise, if all receipts from a taxable person’s financial transactions linked to a taxable activity were to be included in that denominator, even where the creation of such receipts did not entail the use of goods or services subject to VAT, or at least entailed only their very limited use, calculation of the deduction would be distorted.
77. In that regard, it is appropriate to observe that the scale of the income generated by financial transactions within the scope of the Sixth Directive may be an indication that those transactions should not be regarded as incidental within the meaning of the second sentence of Article 19(2). However, the fact that income greater than that produced by the activity stated to be its main activity by the undertaking concerned is generated by such transactions does not suffice to preclude their classification as ‘incidental transactions’ within the meaning of that provision. As the Commission correctly observed, in a situation such as that in the main proceedings, in which the activity of prospecting is profitable in the medium term only or may even prove to be unprofitable and the turnover from transactions in respect of which VAT is deductible may, as a result, be very small, the inclusion of those transactions solely because of the extent of the income they produce would clearly result in distortion of the calculation of the deduction.