New VAT decrees on the holding of shares

On 10 December, the State Secretary of Finance published two important decrees regarding the VAT position of holding companies. These decrees replace, among others, the Holding decree (holdingresolutie) and provide guidance on the VAT deduction right of holding companies and their inclusion in the VAT group.

What does this mean for your business?

The VAT deduction right for shareholding activities is an ongoing topic of discussion between businesses and the Dutch tax authorities. These changes will take effect on July 1, 2025, and may have a broad impact on the VAT deduction right in relation to holding activities.

The decrees that will be withdrawn are regularly invoked in practice in discussions and agreements between businesses and the tax authorities regarding (the extent of) the right to deduct VAT for holding companies. As these decrees are being withdrawn, it is important to determine the consequences and adjust the tax strategy accordingly. It is important to assess how the amended policy affects the VAT deduction right.

The amended VAT deduction decree also provides insight into the tax authorities' view on the VAT treatment of share transactions. Businesses will need to assess on a case-by-case basis whether their share transactions fall within the scope of VAT, whether the VAT on transaction costs is deductible, and what further consequences this has for their right to deduct VAT.

New decrees

The Holding decree (decision of 18 February 1991) and the Share Sale decree (decision of 3 August 2004) are not compliant with EU law, particularly in light of the case law of the Court of Justice ("CJEU"). As of 1 July 2025, these decrees will be repealed and replaced by two other decrees amended by the State Secretary of Finance: the Deduction decree (no. 2 11 2024-13975) and the decree on Taxable Status and VAT Grouping (no. 3 5 2024-13987). The Deduction decree introduces guidelines for the deduction of VAT on costs related to the acquisition, issuance, holding, and sale of shares. The decree on Taxable Status and VAT Grouping includes approval for the inclusion in the VAT group of holding companies that do not qualify as VAT entrepreneurs, addresses the requirements of having financial, organizational and economic links in order to form a VAT group, and clarifies the VAT position of the activities of supervisors and members of various committees.

1. Deduction decree

The amended Deduction decree introduces guidelines for determining (the extent of) the right to deduct in case of activities involving shares. First, it is important to determine whether these activities are concluded by a VAT taxable business acting as such. Then, the extent of the right to deduct must be determined. The new decree provides guidelines for these steps. The new decree also includes guidance for determining the calculation method of the pro rata right to deduct VAT.

Holding shares as an economic activity

The State Secretary distinguishes three situations in which activities involving shares take place in the capacity of a VAT taxable business, thereby aligning with the prevailing doctrine of the Court of Justice (CJEU). Activities involving shares are carried out as an economic activity if (1) the business is involved in the management of the company, (2) the shares form a direct, permanent, and necessary extension of the economic activity of the entrepreneur, or (3) the business is a commercial share trader. Most attention is given to the first two situations, as the category of commercial trading in shares generally does not pose problems.

The decree does not provide concrete examples of involvement in management but does establish, based on CJEU case law, that this includes (the total of) the activities that the business performs for its subsidiary, which constitute a taxable economic activity. Previous case law suggested that this activity must be related to the management of the subsidiary, but in the Marle Participations judgment, the CJEU clarified that this is not required. It is also explicitly stated that involvement in the management does not require the parent company to be a majority shareholder. As a result, the State Secretary distances itself from the opposing view as presented in the Share Sale decree, which will be withdrawn as of July 1, 2025.

Holding shares as a direct, permanent, and necessary extension of the economic activity has been mentioned by the CJEU for decades as a separate category of the economic holding of shares, without ever providing concrete guidance. The amended decree does not include a general definition of the holding of shares as an extension of the economic activity of the business. Instead, the State Secretary suffices with a non-exhaustive list of four examples, mainly derived from CJEU case law. These examples are very specific and seem based on the assumption that such activities support the overall economic activity of the business. This seems to open the door to a broader application of the extension category, which can be seen as a sort of corporation-based approach. As a result of these quite specific examples, it remains to be seen what the practical scope of this category will ultimately be. Nevertheless, it is clear that the State Secretary acknowledges the existence of this category. This means that even if the shareholder is not involved in the management of its subsidiary, the holding of shares can still be held economically, which is a significant change in Dutch practice. In these scenarios, a pre-pro rata issue may no longer be relevant, which is currently often the case. In part, this compensates for the abolishment of the existing holding decree.

Deduction of VAT on transaction costs

To then assess the extent of the right to deduct VAT, it is first important to determine whether the relevant costs qualify as direct costs or general costs. To clarify this distinction, the State Secretary aligns with the relevant considerations in CJEU case law. Direct attribution of costs occurs when there is a direct and immediate link between the purchased service and the activity involving shares, depending on the objective content and nature of the purchased service. If this is not the case, those costs can be part of the general costs of the business. Such costs have a direct and immediate link with their economic activity as a whole.

The State Secretary specifically focuses on the sale of shares in this context and distinguishes between transaction costs incurred by a business before the transaction and costs that arise afterward. Costs incurred before the share transaction are direct costs if they are made solely with a view to conduct the VAT taxable sale of shares. Costs incurred afterward are not direct but general costs if the exclusive reason of these costs is not a VAT taxable sale of shares.

It is questionable whether this distinction is relevant and justified in light of the CJEU case law to which the State Secretary refers. Both Dutch and CJEU case law suggest that transaction costs can be considered general costs, even if they are incurred before the sale.

Extent of the right to deduct

VAT on costs directly related to the sale of shares is generally not deductible. This is different if the shares are held economically and the person to whom the shares are sold is established outside the EU. However, if the costs are part of the general costs of the business, the extent of the right to deduct VAT depends on all its economic and non-economic activities. This may lead to a partial right to deduct VAT, depending on the pro rata and pre-pro rata VAT recovery restrictions.

Pro rata

Based on the new decree, the proceeds from the sale of shares are not included in such a pro rata calculation if the share transaction constitutes an ‘incidental’ financial transaction. This is the case if relatively limited use is made of the business’ costs for this transaction and this transaction is not a core activity of the business. According to the State Secretary, this does not apply to participation or investment companies involved in private equity investments. Sales of shares in a member of a VAT group may be seen as incidental financial transactions. In those cases, an impact on the pro rata VAT deduction right is avoided.

The State Secretary also amended an existing part of this decree regarding the calculation of the pro rata calculation based on the ‘actual use’ method, following recent case law from the Dutch Supreme Court. This calculation must be based on objective and accurate data, and it is not permissible to apply multiple pro rata calculations to mixed-use goods and services.

Pre-pro rata

The State Secretary has not provided further guidance on how the pre-pro rata should be calculated. Section 3.3.3 of the current decree states that this calculation must objectively reflect the actual use of costs. In practice, this leads to varying calculation methods and discussions about the actual use.

2. Decree on Taxable Status and VAT Grouping

Non-taxable holding companies in a VAT group

In the Netherlands, non-taxable businesses cannot, in principle, be part of a VAT group. This also applies to holding companies which have no other activities than the holding of shares. However, there is an approval included in the Holding decree for 'interfering’ holding companies. Such holding companies are not VAT taxable businesses but have a managing role, involved in the policy making of the group, and can under certain conditions be part of the VAT group. This approval from the Holding decree is effectively transferred to this new decree. The condition that a written request must be submitted for inclusion in the VAT group, remains unchanged. In the new decree, this approval is extended to include intermediate holding companies. Unlike the current Holding decree, this new decree explicitly requires the (intermediate) holding to meet the requirements of financial, organizational, and economic links. In practice, the economic link could lead to discussions since non-taxable holding companies do not perform VAT taxable services.

Other adjustments

In this new decree, further guidance is provided on the VAT grouping requirements of having financial, organizational and economic links as per Article 7, paragraph 4 of the Dutch VAT Act. The decree provides further explanation and examples of situations in which these links are present. The numerous examples clarify these criteria but also raise additional questions. Moreover, the Advocate General of the Dutch Supreme Court has recently advised that the Dutch interpretation of financial links is too strict. This case is now being considered by the Dutch Supreme Court, but it seems almost inevitable that a significant part of the scenarios as discussed in the new decree will be affected by this expected Supreme Court ruling.

The remainder of this decree concerns the VAT treatment of the activities of supervisory board members and members of various committees. This is largely in line with the existing decree on this topic and includes some editorial changes and adjustments in connection with the introduction of the Management and Supervision of Legal Entities Act.