New Dutch VAT policy for holdings

VAT deduction right of holding companies

Holding as a VAT entrepreneur
A holding is only entitled to deduct VAT if it qualifies as a VAT entrepreneur and carries out VAT-taxable activities. A holding that merely holds and sells shares does not qualify as a VAT entrepreneur. As in the current decree, the new decree considers holdings to be VAT entrepreneurs in the following three situations:

1. The holding is involved in the management of its subsidiary/subsidiaries.
2. The shares are a direct, permanent, and necessary extension of the company’s economic activities.
3. The holding trades in shares in the course of its business.

In the new decree, the scope of the term "involvement" is broadened. From now on, the broad definition of "involvement" as established by the European Court of Justice will apply. Moreover, a majority stake is no longer required for such involvement.

Especially situation 2 often raises questions in practice. The new decree gives some specific examples of the application of this criterion. For example, being a VAT entrepreneur is assumed in transactions with shares aimed at restructuring or expanding operational activities.

VAT deduction for costs incurred for the sale of shares
The new decree also addresses the distinction between general and direct costs in share transactions. A critical factor is the moment when the costs are incurred. Costs related to the sale of shares incurred prior to the sale of shares are considered direct costs, provided that these costs are objectively incurred solely for the purpose of a VAT-taxable sale transaction. In the case of a VAT-exempt share sale, the VAT on these costs is not deductible (except when the buyer is located outside the EU).

On the contrary, costs incurred after a share sale are in principle considered as general costs. General costs are deductible based on the pro rata deduction right of the entire company (or the VAT group). The pro rata deduction right is determined by the ratio of VAT-taxable revenue to total revenue.

The distinction between pre-sale and post-sale costs is new and may have a significant impact in practice. As a result, timing becomes even more important.

Incidental financial transactions excluded from the pro rata
The sale of shares is in principle a VAT-exempt transaction, negatively affecting the pro rata deduction right of entrepreneurs. Revenue from the sale of shares is excluded from the pro rata calculation if the sale qualifies as an “incidental financial transaction”. According to the new decree, this applies if the transaction involves relatively minimal use of general costs, and the sale is not part of the entrepreneur’s core activities. However, the sale of private equity by a participation or investment company cannot qualify as an “incidental financial transaction”.

VAT Group and holdings

A so-called ‘’passive holding’’ cannot be included in a VAT group, as it does not qualify as a VAT entrepreneur. However, the Holding Resolution contained an approval for the inclusion in a VAT group of a passive holding with a policymaking and managing function within the concern (also known as an "managing holding"). The new VAT Group Decree extends this approval to include managing intermediate holdings. From now on, such a holding can also be part of a VAT group - despite potential absence of VAT entrepreneurship – provided that the required financial, economic, and organizational links are met.

The new VAT Group Decree further elaborates on the interpretation of a financial link in specific situations (e.g., in the case of different types of shares and depository receipts for shares) and provides examples on the interpretation of organizational and economic links.

Practical implications

The new VAT decrees are highly relevant for the current holding practice. It is also important to consider the new decrees when buying or selling shares (including in the M&A sector). We recommend identifying the impact of the new decrees on your business before they come into effect on July 1, 2025.

Want to know more?

Would you like to know more about the impact of the new VAT decrees on your business? Please feel free to contact us. We are happy to assist.