7.7.3 Case 3

A group of companies (active in the automotive industry) decides to purchase another company. It acquires all the shares of the company.

The costs attributable to the acquisition qualify as ‘general costs’ which have, as such, a link with the business as a whole, meaning that the VAT on these costs is deductible according to the pro rata applicable to (this part of) the business.

The costs attributable to the purchase and acquisition of shares qualify as overheads which are directly and immediately attributable to the whole of the economic activity. The VAT on these costs is deductible on the basis of the pro rata which applies to the whole business (this input VAT qualifies as ‘residual input tax’1).

The tax administration states that input VAT related to the acquisition is deductible only if the shares in the acquired company are allocable to the business. The public ruling contains a reference to the ECJ’s requirement that these costs must have become a part of the costs of output transactions. Nobody knows to what extent this requirement applies (only to holdings of the type which get their status as taxpayer solely from services provided to subsidiaries) or to all acquirers, nor is there any official statement as to which costs are meant – the full acquisition price or just the incidental costs. However, it is likely that the solution will be similar to the ones in the Netherlands and the United Kingdom.

There is no VAT grouping allowed in France. In France, the VAT on the acquisition costs is regarded as overheads.2 The VAT recovery position of the holding will therefore depend on whether and to what extent the holding carries out a business activity for VAT purposes next to the holding of shares.