The VAT position of holding companies will change as of 1 July 2025. The State Secretary of Finance has repealed a number of policy decrees and replaced them with new policies. Several ‘favourable’ rules will come to an end as a result, affecting matters such as the right to deduct VAT.
In this article, our experts discuss how this affects among other things the right to deduct VAT on expenses.
VAT deduction and ‘holding resolution’: incentive rules
Under the 1991 ‘holding resolution’, holding companies may be included in a fiscal unity for VAT purposes even if they are not a VAT entrepreneur. Furthermore, active holding companies have been able to deduct VAT on costs related to share transactions under certain conditions since 2004. But the Netherlands must also take European agreements into account when applying VAT rules. On 10 December 2024, the State Secretary of Finance therefore published two new decrees on the VAT position of holding companies.
New decree on holding companies and fiscal unity for VAT purposes
Among other things, the first decree gives policy rules about the fiscal unity for VAT purposes. In a fiscal unity for VAT purposes, multiple entities can be regarded as a single VAT entrepreneur if they are so interrelated that they form a unity.
The decree will take effect from 1 July 2025 and the existing holding resolution will be repealed. Read more about the consequences of this decree here.
New VAT deduction decree and transactions involving shares
The second new decree addresses the deduction of input VAT in transactions involving shares. In an attempt to bring Dutch practice more in line with developments in European case law, this decree provides new policy rules. In general, the following points stand out:
Under Dutch law, there is a right to deduct VAT included in the direct costs of selling shares, provided the buyer is located outside the EU. It follows from the new decree that if shares are traded over a stock exchange, the place of establishment of that stock exchange will be used to determine the place of establishment of the buyer.
Additionally, the decree states that the consideration for the sale and transfer of shares is not included in the ‘pro rata’ for VAT deduction if it constitutes an ancillary financial transaction. This is usually the case when sales and transfers are incidental.
The decree will come into force from 1 July 2025 and the existing decree on levying VAT in relation to the sale of shares will be repealed.
Shares and VAT deduction: two situations
With regard to VAT deduction, the second new decree makes the distinction between transactions involving shares that fall outside the scope of the VAT and transactions that fall within this.
Situation 1: Transactions involving shares are outside the scope of the VAT
Merely acquiring and holding shares (e.g. for investment) do not constitute economic activities. This also applies to the sale and transfer of such shares. If this is not part of the economic activities of the holding company (entrepreneur), VAT on supplies purchased for the benefit of shares is not deductible.
Situation 2: Transactions involving shares, within the scope of the VAT
Activities such as acquiring, holding, issuing and selling shares are within the scope of VAT if they take place in the capacity of an entrepreneur. For example, if the holding company is (directly or indirect) involved in the management of the participation and moreover performs a taxable economic activity for that participation. In the case of commercial share trading and so-called ‘extension situations’, this transaction also falls within the scope of VAT. The decree discusses the cases where there are extension situations in detail.
With regard to the deduction of VAT on expenses for transactions involving shares within the scope of VAT, the State Secretary notes among other things the following:
For the extent of VAT deduction, it must be determined whether costs are directly attributable to a particular (intended) transaction involving shares. This is the case if there is a direct and immediate correlation between the purchased supply and a taxable transaction. This is determined by the objective content and nature of the service purchased.
If costs are incurred prior to the sale and transfer of the shares, there is a direct and immediate correlation if the supply was purchased solely for the purpose of a taxable sale transaction. VAT on costs attributable to a VAT-exempt share sale is not deductible, except in cases where the buyer is located outside of the EU.
If expenses are incurred after the share sale and transfer, there is no direct and immediate correlation if the purchased supply is not solely caused by a taxable sale and transfer of the shares. If they cannot be attributed directly, then the costs may constitute general costs for the entrepreneur. The right to deduct VAT then exists to the extent that the whole of its economic activities entitles it to deduct input VAT.
Please note: in some cases, you may be able to deduct non-deductible VAT for the purchase and sale costs of a participation in the corporate income tax return. This qualification follows the ‘regular’ corporate income tax rules. Your tax advisor can tell you more about this topic.
What does this mean for your VAT position?
The VAT treatment of holding companies and transactions involving shares will change as of 1 July 2025. This will have major implications for entrepreneurs, and it is important to consider this in time. With the concurrence of Dutch and European laws, rules and case law, this topic remains particularly complicated and strongly dependent on the specific facts and circumstances.
Our experts can help you gain clarity and can tell you more about the consequences for your business. And we would be happy to discuss what steps you can take to make sure your (changed) VAT position is clear and optimised.
Do you have any questions about your VAT position or the amended policy decrees? Please contact the VAT & Customs Advisory team at Baker Tilly. We would be happy to assist you!
The legislation and regulations in this area may be subject to change. We recommend that you discuss the potential impact of this with your Baker Tilly advisor.
