The Scope of Involvement in Management as a Prerequisite for Input Vat Deduction Related to Transactions in Shares and Possible Incompatibility With Abuse of Law Principle

Abstract

This article analyzes the concept of “direct and indirect involvement of holding companies in the management of subsidiaries”, in the light of principle of abuse of the law, practical problems related to the delineation of actual intention of involvement and difficulties arising in determining proportion to what extent a taxable person is entitled to deduct input VAT. Its conclusions are of relevance to EU Member States and countries who have implemented, or are looking to implement, the VAT system established by “Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax” as part of their national tax regime. Because of conceptual and practical difficulties emerging in the process of VAT application to dealings in shares, the role of CJEU is significant, however in some cases, it has arguably contributed to increase in ambiguity. All in all, according to the CJEU the involvement concept and its current practice does not collide with existing abuse of law principle, which puts taxpayers in a far better position to defend their right to deduct. Furthermore, to guarantee the equity of proper function of the system and taxpayers rights, the CJEU acknowledges that tax authorities and policy makers are entitled to introduce measures which will comply with fundamental principles of VAT system.