On 6 September 2018, the Advocate General (AG) of the Court of Justice of the European Union (ECJ) gave her opinion on C&D Foods Acquisition ApS v. Skatteministeriet (Case C-502/17). The case concern whether a holding company that carries out an economic activity can deduct the input VAT charged on costs connected with an intended sale of shares when the sale does not proceed. In answering this question, the AG noted that an intended sale by a holding company of shares of its subsidiary in which its management was involved must be regarded as an economic activity for EU VAT purposes. However, to be able to claim a deduction for input VAT, there must not be a direct link between the VAT incurred and a VAT exempt activity (such as a sale of shares). The AG expresses the view that a holding company does not have the right to deduct input VAT charged on consultancy services used that are directly linked to an envisaged, but not completed, sale of shares in a subsidiary (which is VAT exempt). It is up to the national court to establish whether there is such a link.
The decision of the Court of Justice will be important as generally holding companies which incur input VAT on professional fees on abortive transactions generally treat it as general overhead VAT rather than attributable to the intended supply. Much will depend on the facts as to whether such an argument is still possible.
On 5 September, the AG published two opinions concerning the 'Special Scheme for Travel Agent'. In Case C-552/17, Alpenchalets Resorts, the AG started its analysis by reiterating the two conditions in order for a taxable person to apply the scheme: (i) it should act in its own name and not as an intermediary; and (ii) it should use the supplies of third parties. In this case, Alpenchalets Resorts GmbH (Alpenchalets) rented houses in Austria, Germany and Italy from their owners and subsequently let them, in its own name, together with other services provided by the house owners to individual customers for holiday purposes. The AG opined that these services qualify for the special scheme as being ancillary to the accommodation service. On the question relating to whether a reduced VAT rate can be applied to the margin of a travel agent applying the scheme, the AG held that the transactions, when taken together as a travel service, is not included in Annex III to the EU VAT Directive (2006/112) and, thus, cannot be subject to a reduced VAT rate.
In Skarpa Travel sp. z. o.o. w Krakowie (Skarpa), a taxpayer covered by the special scheme for travel agents received prepayments from its customers, but it was unclear when the output VAT become due. The AG held that VAT on prepayments become due at the time the payment is received. At that moment, VAT is to be calculated based on the margin, which can be established as the difference between the sum received as payment on account and the corresponding percentage of the overall projected costs for the transaction.