Services to Irish-based Companies

Tax Tips November 2019

VAT deductibility of general costs for holding companies

Revenue have recently confirmed its view in relation to Irish VAT deductibility treatment for holding companies.  The publications of such guidance have been greatly anticipated and it follows lengthy discussions between Revenue and various stakeholders regarding the VAT rules in this area.

A VAT deduction can be taken by a holding company on services acquired provided there is a direct and immediate link:

  1. Between the costs incurred and the output transaction which is taxable of qualifying in nature; or
  2. To the holding company’s economic transactions or form part of the general costs linked with its overall economic activities.

A holding company can incur general costs such as group legal fees, stock exchange listing fees and regulatory fees.  Determining whether a link exists between general costs such as the above and the holding company’s economic activity is an objective evaluation.

The position can be summarised as follows:

  1. Passive holding company – not entitled to deduct any VAT in respect of general costs on the basis that there is no economic activity that would give rise to a right of deduction.
  2. Active holding company – entitled to deduct VAT in respect of share acquisition costs where there is a direct and immediate link either to the provision of such services or to its economic activity or those costs constitute general costs linked with the holding company’s overall economic activity.  Revenue has confirmed that where the level of management fees charged to the subsidiary or subsidiaries is less than the acquisition costs incurred by the holding company this should not in and of itself, impact adversely on the VAT deductibility of such costs.
  3. Mixed holding company – for holding companies which are involved in both passive and active economic activities only costs which have a direct and immediate link with the company’s active economic activity can be taken as a VAT input deduction.  For costs which are related to both the passive and active economic activity an appropriate apportionment should be made.

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