Opinion of Advocate General Kokott delivered on 14 May 2020.

• Jurisdiction: European Union
• Celex Number: 62019CC0042
• ECLI: ECLI:EU:C:2020:378
• Date: 14 May 2020
• Court: Court of Justice (European Union)

Provisional text

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 14 May 2020 (1)

Case C‑42/19

Sonaecom SGPS SA

v

Autoridade Tributária e Aduaneira

(Request for a preliminary ruling from the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal))

(Request for a preliminary ruling — Common system of value added tax (VAT) — Directive 77/388/EEC — Concept of taxable person — Holding company — Mixed holding company — Deduction of input tax — Expenditure for consultancy services and for the issue of corporate bonds with a view to acquiring another company — Change in planned output transactions)

I. Introduction

1. The Court has already considered the right to deduct of holding companies several times. (2) Nevertheless, this continues to present problems in practice, in particular where a holding company merely manages shares in certain companies, but supplies taxable services to other companies owned by it (‘mixed holding company’).

2. In the present case, Sonaecom SGPS, SA (‘Sonaecom’) wished to acquire shares in an undertaking and then to supply taxable services to it. In preparation for the transaction, it used consultancy services and services relating to the issue of corporate bonds. Sonaecom claimed a deduction on that basis. However, this was refused by the Portuguese tax authority on the ground that, in particular, Sonaecom was not able to make the investments and instead made the capital raised available to the parent company of the group as an exempt loan.

3. In these proceedings the Court will, in particular, have to clarify what effects the change from the planned activity to the actual activity has on the deduction of input tax.

II. Legal framework

A. EU law

4. The framework of the request for a preliminary ruling in EU law is provided by Directive 77/388/EEC (‘the Sixth Directive’), (3) which has now been repealed by Directive 2006/112/EC (‘the VAT Directive’). (4) The relevant provisions of the two directives are substantively identical to a large extent.

5. Under point 1 of the first subparagraph of Article 2 of the Sixth Directive (now Article 2(1)(a) to (c) of the VAT Directive), the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such is to be subject to value added tax.

6. Article 4(1) of the Sixth Directive (now the first subparagraph of Article 9(1) of the VAT Directive) defines ‘taxable person’ as follows:

‘“Taxable person” shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity.’

7. Article 13(B)(d)(1) of the Sixth Directive (now Article 135(1)(b) of the VAT Directive) provides for exemptions within the territory of the country:

‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(d) the following transactions:

1. the granting and the negotiation of credit and the management of credit by the person granting it’.

8. Article 17(1) and (2)(a) of the Sixth Directive (now Articles 167 and 168(a) of the VAT Directive) governs the origin and scope of the right to deduct:

‘1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person’.

B. Portuguese law

9. In the period at issue, Article 9(28)(a) of the Código do Imposto sobre o Valor Acrescentado (Portuguese Code on Value Added Tax) provided:

‘The following shall be exempt from tax:

28.

(a) the granting and negotiation of credit, in any form, including discount and rediscount transactions, and the administration and management of credit by the person who granted it’.

III. Facts and main proceedings

10. Sonaecom is a holding company which acquires, holds and manages shares with full rights to the resulting income. In addition, it manages and provides strategic coordination to companies operating in the telecommunications, media, software and systems integration markets. Sonaecom asserts that it received due consideration for the management and strategic coordination services, which were taxed at the full rate of VAT.

11. In 2005, Sonaecom wished to invest in the new business segment ‘Triple Play’, which combines audiovisual entertainment, telephony and internet. To that end, Sonaecom used consultancy services provided by two undertakings which studied the market with a view to Sonaecom’s possible acquisition of shares in the telecommunications provider CabovisãosEUR 212 627.56 in VAT was incurred in respect of those services.

12. In addition, Sonaecom paid a taxable commission to an investment bank to organise, put together and guarantee the placement of a private issue of bonds known as ‘Sonaecom-SGPS-2005-bonds’ with a value of EUR 150 000 000. EUR 769 500.00 in VAT was incurred. Sonaecom asserts that it planned to use the capital thus obtained to acquire shares in Cabovisão and then to provide taxable technical support and management services to that company.

13. However, the acquisition of the shares in Cabovisão did not materialise. Sonaecom thereupon made available the capital obtained through the issue of the bonds to the parent company of the group, Sonae SGPS SA, as a loan.

14. Sonaecom made a deduction of a total sum of EUR 982 127.56 for 2005 in respect of the VAT arising for the consultancy services (in the return for December 2005) and the commission (in the return for June 2005).

15. Following an audit, the Autoridade Tributária e Aduaneira (Tax and Customs Authority, Portugal) adjusted the tax in 2008 and demanded payment of the tax declared plus EUR 106 548.20 in compensatory interest, making a total of EUR 1 088 675.77. As grounds, it stated that, first, the acquisition of shares fell outside the scope of VAT and, second, the granting of credit was exempt under Article 13(B)(d)(1) of the Sixth Directive.

16. The action brought against those assessment notices in October 2008 was dismissed by the Tribunal Administrativo e Fiscal do Porto (Porto Administrative and Tax Court, Portugal) in 2016. The VAT for the consultancy services was not deductible because the intended acquisition and management of shares were not economic activities. The VAT in respect of the commission for the issue of bonds was not deductible because the capital had been transferred in full to the parent company of the group and Sonaecom had not demonstrated that that capital benefited the affiliated companies or that it had been employed in an output transaction that gives rise to the right to deduct VAT.

17. Sonaecom lodged an appeal against that judgment. Sonaecom claims that, by their nature, the acquisitions at issue must at least be regarded as forming part of the costs which it had to incur in order to be able properly to supply the services which it regularly provides for its affiliates. Its interventions in the management of those companies are repeated and significant, in particular through cooperation in the development of their strategy and in the provision of services for remuneration and, in turn, it therefore frequently needs to procure a huge variety of supplies and services.

IV. Request for a preliminary ruling and procedure before the Court

18. By order of 5 December 2018, which was received at the Court on 24 January 2019, the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) referred the following questions to the Court for a preliminary ruling pursuant to Article 267 TFEU:

(1) Is it compatible with the deductibility rules laid down in the Sixth VAT Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax borne by the appellant, Sonaecom SGPS, in respect of consultancy services connected with a market study commissioned with a view to acquiring shares, where that acquisition did not materialise?

(2) Is it compatible with the deductibility rules laid down in the Sixth VAT Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax borne by the appellant, Sonaecom SGPS, in respect of the payment to BCP of a commission for organising and putting together a bond loan, allegedly taken out with a view to integrating the financial structure of its affiliated companies, and which, since those investments failed to materialise, was ultimately transferred to Sonae, SGPS, the parent company of the group?

19. Sonaecom, the Portuguese Republic and the European Commission submitted written observations on the request for a preliminary ruling and presented oral argument at the hearing on 12 February 2020.

V. Legal assessment

A. Deduction in respect of expenditure for the consultancy services (first question)

20. By its first question, the referring court wishes to know whether the deduction made by Sonaecom is compatible with the Sixth Directive. It is thus ultimately asking whether the deduction declared by Sonaecom is consistent with EU law. It is nevertheless apparent from the request for a preliminary ruling that the referring court actually wishes to know whether Articles 17 and 4 of the Sixth Directive are to be interpreted as meaning that a holding company in a situation like Sonaecom’s is entitled to deduct VAT paid in respect of certain services.

21. Furthermore, the referring court fails to recognise that, according to the Court’s settled case-law, the mere acquisition of shares by a holding company is not an economic activity within the meaning of VAT law. (5) It is otherwise...