Recently, the Dutch State Secretary of Finance announced that the holding decree will be withdrawn and replaced with new policy. This could have an impact on the right to recover input VAT for holding companies that qualify as a VAT taxable person. In this update, we will cover the high-level changes and the implications

Background 

Holding companies are, in principle, entitled to deduct input VAT on incoming costs, if the holding qualifies as a VAT taxable person. This is the case if the holding provides goods or services in return for consideration, and these activities qualify as an economic activity. If holding companies also hold shares, in practice this could result in a limitation of deduction input VAT, since the mere holding of shares is considered as a non-economic activity.

Under strict conditions, based on the current holding decree, the position can be taken that the holding of shares cannot have an impact on the right to recover input VAT. Despite the paragraph on which this position is based, the Dutch tax authorities often turn down this position since the holding decree is not (fully) in line with the current case law by the European Court of Justice. 

New policy

The holding resolution will be withdrawn as of 1 July 2025 and will be replaced by two new decisions by the Dutch tax authorities (Nr. 38540, 10 December 2024 and Nr.38545, 10 December 2024). According to the new decisions, the shareholding activities are not considered to be a non-economic activity in the following scenarios.

  1. Interference in the management of the company that is considered to be a VAT taxable activity.
  2. The holding of shares constitutes the direct, permanent and necessary extension of the taxable activity. The following examples are mentioned:
    • The act is aimed at (re)structuring and is therefore related to the organization of the economic activities of the entrepreneur.
    • The purpose of a sale and transfer of shares is to allocate the proceeds directly to the taxable economic activity of the company concerned.
    • the entrepreneur aims with the act to expand or change his operational activities.
    • the act serves to cover his obligations relating to economic activity.
  3. The holding company trades commercially in shares and other securities.

In addition, the new decisions include a comprehensive step-by-step plan to determine whether VAT on costs relating to the sale of a shareholding is deductible. These steps require careful assessment of whether the VAT is (partly) deductible and could potentially result in a different conclusion as to the current policy of the holding decision.

What does this mean for you?

For holding companies (companies with shareholdings), the new policy could have a significant impact on the input VAT recovery in particular scenario. Especially that the wording of “a permanent and necessary extension of the taxable event” is defined could potentially result in a better position for input VAT recovery, in case some shareholdings are not accompanied with for example VAT taxable management activities. Therefore, we recommend holding companies to review their position in relation to input VAT recovery and shareholding activities and determine the potential financial implications.