'Light' holding company: VAT taxpayer with interference in the subsidiaries’ activities
With its response to Ruling No. 244, published on 9 December 2024, the Italian Tax Authority, in complying with the guideline of the EU Court of Justice, clarified that the direct or indirect interference in the management of a subsidiary company represents an economic activity that qualifies a light-structured holding company as a VAT taxpayer.
The case
The present case relates to the Alfa Group's corporate reorganisation project, which was designed to finance the acquisition of the target (Zeta) in the following steps:
- the creation of three lightly structured holding companies (i.e. without assets and employees) Delta, Beta Topco and Gamma Midco (‘Holding’)
- raising financial resources through (i) a shareholders‘ capital increase (Delta); (ii) issuance of a guaranteed bond (Beta) and (iii) a shareholders’ loan (Gamma)
- disbursement of loans to the operating subsidiary (Alfa) to enable the acquisition of Target;
- charge-back to Alfa of the legal, notary and advisory costs (transaction costs) incurred by the Holding Company for this purpose.
Based on the foregoing, the Applicants requested the Italian Tax Authority to clarify (i) the VAT liability of the light holding companies (ii) the deductibility of the transaction costs re-charged to the subsidiary Alfa.
The response
On the first question, the Agency referred to the principle adopted by the EU Court of Justice, according to which ‘the holding of a share in a company (or the taking of financial participations in other companies) which does not involve “interference” in their management does not constitute an economic activity within the meaning of the VAT rules [and therefore the status of VAT taxpayer]
In accordance with previous answers of the Italian tax authority, the status of VAT taxpayer requires interference in the management of the subsidiaries through VAT-relevant transactions, such as the provision of administrative, financial, commercial and technical services.
Italian tax authority provided a positive response to the question due to the effective interference in the management of the subsidiary identified in the context of the financing activity, resulting in the charge-back of transaction costs relevant for VAT purposes.
On the second question, the response shows that a holding company is allowed to deduct VAT if the services purchased and subsequently invoiced to the subsidiaries have a direct and immediate connection with the economic transactions giving entitlement to deduction.
The response is closely aligned with recent Italian precedents on issues of absolute relevance in the holding company context, such as the VAT tax liability and the deductibility of transaction costs.