“The Company is involved in the financing activities of its ultimate parent entity in the UK (FGP Topco Limited) for the acquisition, and ongoing operations, of [BAA]”
“ Macquarie’s Role – The Acquisition – Macquarie is engaged by [ADIL] in connection with the Acquisition to act as co-financial adviser to [ADIL] with [Citigroup]. … The services to be provided under this engagement in connection with the Acquisition may include, amongst other things, advice and services as set forth in Schedule 1.” “ Schedule 1 – Services which may be provided in connection with the transaction ”
“Business plan and financial modelling; Due diligence; Valuation; Capital structure in connection with the acquisition facilities; Execution.” “ Macquarie’s Role – The Refinancing – Within 24 months of completion of the Acquisition, the Consortium and/or [ADIL] and/or [BAA] intend to implement a debt strategy that will involve the following (i) a refinancing of [BAA’s] existing financial facilities (including its public debt) and (ii) a full refinancing of the facilities used by the Consortium or [ADIL] to fund the transaction … Macquarie is engaged by [ADIL] in connection with the acquisition to act as its financial adviser in connection with [both (i) and (ii)]. … The services to be provided under the engagement for the Refinancing may include, amongst other things, advice and services as set forth in Schedule 2.” “ Schedule 2 – Services which may be provided in connection with the refinancing ”
“Objectives and strategy; Process; Model and sensitivity; Fund raising; Structuring, documentation and hedging.” “ Fees – Completion fee – [ADIL] shall pay Macquarie a fee (the Completion Fee) of£30 million for its services as co-financial adviser in connection with the Acquisition. The Completion fee will become due and payable on completion of the acquisition …”
“[ADIL] has indicated that it is committed to the long term ownership and continued development of BAA’s business and to its investment needs in the future.” [p 29] “ Investment plans - [ADIL] has ensured that financing will be available to undertake the published capital expenditure programme of BAA in the UK. The need for terminal and runway capacity has been highlighted in the White Paper and [ADIL] recognises the importance of implementing the CAA’s recommendations for the future development of the airports in South-East England in particular. To assist in this process, [ADIL] has arranged a£2.0 billion capital expenditure facility which is capable of being drawn for a five-year period. Should this funding source be fully utilised, [ADIL] is confident it will be able to raise additional capital expenditure facilities to assist in funding further investment.” [p 29] “ Refinancing – Shortly after the completion of the acquisition of BAA, [ADIL] intends to refinance the Senior Acquisition Facilities with a longer term financing structure based upon proven techniques adopted by other regulated companies. This process is intended to provide the medium and long-term financing required to support the investment needs of BAA.”
“BAA plc has recently been the subject of an acquisition and the companies to be included in the group are the new holding companies for the BAA group. While these companies are unlikely to make supplies outside of the group, charges for management and administrative services will flow between existing members of the group and the new members.”
“The costs relate to the acquisition of the BAA group. … I confirm your understanding that currently there is no intention for supplies to be made by the above companies [these include ADIL] to persons outside the VAT group. To date, no supplies have been made to companies within the VAT group but intra-group supplies of technical/advisory services are likely to be made in the future. Also, if the securitisation of the regulated airports goes ahead the companies may make taxable supplies of technical/advisory services to the regulated companies which will be separately registered for VAT. Notwithstanding the intention to make taxable supplies, it is my understanding that the companies are entitled to be included within the VAT group registration and to recover VAT on the costs of acquiring the BAA group. [HMRC’s] policy on holding companies and recovery of VAT on acquisition costs is set out in C&E Press Notice 59.93,10 September 1993 . The Notice states that “… holding companies are liable to be registered for VAT, where they have taxable trading activities, supply management services to subsidiaries, or are included in a VAT group with trading subsidiaries.”
“A detailed examination of the invoices and information relating to the invoices has been undertaken. From this examination it is clear that the costs incurred relate to the acquisition of the BAA business as a whole. These costs of ownership are investment costs that have been incurred by [ADIL] in raising finance to acquire the BAA group. There is no direct and immediate link between the supplies on which this VAT was incurred and any taxable supplies made (or to be made) by the BAA VAT group.”
“ The principle of the common system of value added tax involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged. On each transaction, value added tax, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components. The common system of value added tax shall be applied up to and including the retail trade stage.”
“1. The right to deduct shall arise at the time when the deductible tax becomes chargeable. 2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay: (a) value added tax due or paid within the territory of the country in respect of goods or services supplied or to be supplied to him by another taxable person;…”
“ As regards goods and services to be used by a taxable person both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible, only such proportion of the value added tax shall be deductible as is attributable to the former transactions.”
“Section 24 (1) Subject to the following provisions of this section, “input tax”, in relation to a taxable person, means the following tax, that is to say— ( a ) VAT on the supply to him of any goods or services; ( b ) VAT on the acquisition by him from another member State of any goods; and ( c ) VAT paid or payable by him on the importation of any goods from a place outside the member States, being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him.” “Section 26 (1) The amount of input tax for which a taxable person is entitled to credit at the end of any period shall be so much of the input tax for the period (that is input tax on supplies, acquisitions and importations in the period) as is allowable by or under regulations as being attributable to supplies within subsection (2) below. (2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business— ( a ) taxable supplies; ( b ) supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom; ( c ) such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection.”
“… the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT therefore ensures that all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT, are taxed in a wholly neutral way.”
“The deduction system is thus designed to avoid a cumulative effect where VAT has already been levied on goods and/or services used in order to produce those supplied or, in other words, to avoid VAT being levied anew on VAT already charged. A chain of transactions builds up, in which the net amount payable in respect of each link—that is to say the total amount chargeable in respect of the supply in question, minus the amounts already charged on inputs—is a specified proportion of the value added at that stage. When the chain comes to an end with a supply to a final consumer, the total amount levied—and ultimately borne by that consumer, since the various traders in the chain will have been able to deduct all the amounts paid by them—will have been the relevant proportion of the final price.”
“ 1. “Taxable person” shall mean any person who independently carries out in any place any economic activity specified in paragraph 2, whatever the purpose or results of that activity. 2. The economic activities referred to in paragraph 1 shall comprise all activities of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions. The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis shall also be considered an economic activity. 3. Member States may also treat as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in paragraph 2 …”
“… 'economic activity' must therefore be construed as meaning an activity likely to be carried out by a private undertaking on a market, organised within a professional framework and generally performed in the interest of generating profit. It is to be noted that this interpretation is quite different compared with the interpretation of 'economic activity' in other sectors such as competition law, where it also has the purpose of determining the scope of application of Community law (see, in particular, Höfner and Elser v Macrotron GmbH (Case C-41/90 )[1991] ECR I-1979 ). In the tax field, the concept of economic activity is based on a double criterion, not only a functional criterion relating to activity but also and above all a structural criterion relating to organisation. Such a definition is in accordance with the objective of the common system of VAT, which is to treat, for the purposes of the tax, all active persons established on Community territory equally.”
“It is settled case law that the mere acquisition and holding of shares is not to be regarded as an economic activity within the meaning of the Sixth Directive. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property and is not the product of any economic activity within the meaning of that directive (see Harnas & Helm , para 15; KapHag , para 38, and Banque Bruxelles Lambert SA ( BBL ) v Belgium (Case C-8/03 )[2004] STC 1643 , para 38).”
“34. Now, the trust manages the assets it holds, consisting in part of its shareholding in the foundation and of other financial instruments. Its investment activities, as described above, consist essentially in the acquisition and sale of shares and other securities with a view to maximising the dividends and capital yields which are destined for the promotion of medical research. 35. It is true that, by virtue of art 13B(d)(5) of the Sixth Directive, transactions in shares, interests in companies or associations, debentures and other securities may fall within the scope of VAT. This will be the case, in particular, where such transactions are effected as part of a commercial share-dealing activity or in order to secure a direct or indirect involvement in the management of the companies in which the holding has been acquired (see Polysar Investments Netherlands BV[1993] STC 222 at 239). However, as is clear from the order for reference, the trust is forbidden to engage in precisely such activities, being required to make all reasonable efforts to avoid engaging in trade when exercising its powers and being precluded from taking majority holdings in other companies. 36. Consequently, and irrespective whether the activities in question are similar to those of an investment trust or a pension fund, the conclusion must be that a trust which is in a position such as that described by the referring tribunal must, in the light of art 4 of the Sixth Directive, be regarded as confining its activities to managing an investment portfolio in the same way as a private investor. 37. Furthermore, contrary to the arguments of the trust, neither the scale of a share sale, such as the second share sale carried out in this case, nor the employment, in connection with such a sale, of consultancy undertakings can constitute criteria for distinguishing between the activities of a private investor, which fall outside the scope of the Sixth Directive, and those of an investor whose transactions constitute an economic activity. Apart from the fact that large share sales may also be carried out by private investors, the trust's argument, if accepted, would mean that the classification of a transaction as an economic activity would depend on the investor's skill and experience.”
“The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purposes of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property. It is otherwise where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired, without prejudice to the rights held by the holding company as shareholder. … art 4 of the Sixth Directive is to be interpreted as meaning that a holding company whose sole purpose is to acquire holdings in other undertakings, without involving itself directly or indirectly in the management of those undertakings, without prejudice to its rights as a shareholder, does not have the status of a taxable person for the purpose of VAT and therefore has no right to deduct tax under art 17 of the Sixth Directive.”
“The national court has pointed out that Polysar's activities are concerned solely with the holding of shares in subsidiary companies. It seems to me that such activities, which are undertaken in the exercise of shareholders' rights, do not constitute 'economic activities' within the meaning of the directive. The exercise of those rights includes, for instance, participation in the general meeting of the subsidiary's shareholders, the exercise of the right to vote at the meeting and the possibility of influencing company policy thereby and, where appropriate, involvement in the decision appointing the company's directors or officers and/or apportioning the subsidiary's profits, as well as the receipt of any dividends declared by the subsidiary or the exercise of shareholders' preferential rights or options. In addition to the aforesaid activities which a holding company carries on as a shareholder in other companies, there are activities which, like any other company, it carries on through its organs and which, in so far as they are conducted within the company (in its relations with the shareholders and the company's organs) also cannot be regarded as 'economic activities', within the meaning of the Sixth Directive. Those activities include the administration of the holding company, the making up of the annual accounts, the organisation of the general meeting, the decision to spend the holding company's profits and to declare (and possibly pay out) dividends. Nor, in my view, is there any question of economic activities independently carried on within the meaning of art 4(1) of the Sixth Directive in the case of activities which the holding company, or persons acting in its name, carries out in its capacity as director or officer of a subsidiary company. A director or officer of the company does not act on his own behalf but only binds the (subsidiary) company whose instrument he is; in other words, where he acts in the exercise of his duties under the company instruments, there is no question of his acting 'independently'. In that regard, his actions must be equated with those of an employee who, as art 4(4) of the Sixth Directive expressly states, does not act 'independently'.”
“ It follows that involvement … in the management of subsidiaries must be regarded as an economic activity within the meaning of art 4(2) of the Sixth Directive, in so far as it entails carrying out transactions which are subject to VAT by virtue of art 2 of that Directive, such as the supply by Floridienne … of administrative, accounting and information technology services to their subsidiaries.”
“It is clear from case law that that conclusion is based, amongst other things, on the finding that the mere acquisition and holding of shares in a company is not to be regarded as an economic activity, within the meaning of the Sixth Directive, conferring on the holder the status of a taxable person. The mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis because any dividend yielded by that holding is merely the result of ownership of the property. However, the court has held that it is otherwise where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired, without prejudice to the rights held by the holding company as shareholder. It is clear … that direct or indirect involvement in the management of subsidiaries must be regarded as an economic activity within the meaning of art 4(2) of the Sixth Directive where it entails carrying out transactions which are subject to VAT by virtue of art 2 of that Directive, such as the supply by a holding company … of administrative, financial, commercial and technical services to its subsidiaries.”
“The answer to the first question referred for a preliminary ruling must therefore be that the involvement of a holding company in the management of companies in which it has acquired a shareholding constitutes an economic activity within the meaning of art 4(2) of the Sixth Directive where it entails carrying out transactions which are subject to VAT by virtue of art 2 of that Directive, such as the supply by a holding company to its subsidiaries of administrative, financial, commercial and technical services.”
“The forms of 'involvement' in the management of subsidiaries that are listed in para 19 of the judgment in Floridienne … include examples of activities for the purposes of art 2 of the Sixth Directive. In theory, any economic activity within the meaning of art 4(2) of the Sixth Directive may, in so far as it entails carrying out transactions subject to VAT by virtue of art 2 of the Sixth Directive, be 'involvement'. 16. Therefore, where a holding company does not just own shares, but in addition provides services to its subsidiaries in return for a fee—in which case it is ex hypothesi a mixed holding company—it becomes a taxable person in connection with those economic transactions, because such activities are, in contrast to the mere acquisition and ownership of shares, to be regarded as economic activities within the meaning of the Sixth Directive (see Polysar … ). 17. Finally, it is to be noted that it cannot be for the court to provide an exhaustive list of all conceivable (economic) activities that may in principle fall within arts 2 or 4(2) of the Sixth Directive. Rather, it is for the national court to determine whether the criteria provided by the court are applicable to the actual facts of the case before it. 18. Thus, the answer to the first question referred by the national court should, in my view, be that there is 'involvement' of a holding company in its subsidiary where, in addition to exercising its shareholder rights, the holding company also carries out for its subsidiary economic activities within the meaning of art 4(2) of the Sixth Directive, entailing the carrying out of activities which are subject to VAT under art 2 of the Sixth Directive.”
“…art 17 of the Sixth Directive must be construed as allowing a taxable person acting as such to deduct the VAT payable by him on goods or services supplied to him for the purpose of investment work intended to be used in connection with taxable transactions. The right to deduct remains acquired where, by reason of circumstances beyond his control, the taxable person has never made use of those goods or services for the purpose of carrying out taxable transactions.”
“Input tax in respect of exempt transactions is not deductible in the common system of VAT, because in such a case the taxable person acts as the final consumer, since he is unable to pass the VAT onto third parties (see the judgment in Becker v Finanzamt Münster-Innenstadt (Case 8/81) [1982] ECR 53 at 75, para 44).”
“18. Paragraph 2 of art 17 of the Sixth Directive must be interpreted in the light of para 5 of that article. 19. Paragraph 5 lays down the rules applicable to the right to deduct VAT where the VAT relates to goods or services used by the taxable person 'both for transactions covered by paragraphs 2 and 3, in respect of which value added tax is deductible, and for transactions in respect of which value added tax is not deductible'. The use in that provision of the words 'for transactions' shows that to give the right to deduct under para 2, the goods or services in question must have a direct and immediate link with the taxable transactions, and that the ultimate aim pursued by the taxable person is irrelevant in this respect. 20. That interpretation is confirmed both by art 2 of the First Directive and by art 17(3)(c) of the Sixth Directive. 21. Article 2 of the First Directive states that only the amount of tax borne directly by the various cost components of a taxable transaction may be deducted.”
“That explanation points to an apparent conflict with the need, under the BLP test, for a 'direct and immediate' link with a particular supply. Indeed, the European judgments show some tension between the formulaic repetition of the 'direct and immediate' test and the practical need to accommodate 'overheads', even though not directly linked with any particular supplies.”
'35. However, the costs of those services form part of the taxable person's overheads , and as such are cost components of the products of a business. Even in the case of a transfer of a totality of assets, where the taxable person no longer effects transactions after using those services, their costs must be regarded as part of the economic activity of the business as a whole before the transfer. Any other interpretation of art 17 of the Sixth Directive would be contrary to the principle that the VAT system must be completely neutral as regards the tax burden on all the economic activities of a business provided that they are themselves subject to VAT, and would make the economic operator liable to pay VAT in the context of his economic activity without giving him the possibility of deducting it … 36. Thus in principle the various services used by the transferor for the purposes of the transfer of a totality of assets or part thereof have a direct and immediate link with the whole economic activity of that taxable person [emphasis added].'
“…expenditure incurred by a holding company in respect of the various services which it purchased in connection with the acquisition of a shareholding in a subsidiary forms part of its general costs and therefore has, in principle, a direct and immediate link with its business as a whole.”
“The answer to the questions referred must therefore be that, where a member state has made use of the option in art 5(8) of the Sixth Directive, so that the transfer of a totality of assets or part thereof is regarded as not being a supply of goods, the costs incurred by the transferor for services acquired in order to effect that transfer form part of that taxable person's overheads and thus in principle have a direct and immediate link with the whole of his economic activity.”
“The reference to cost components in BLP is a reminder of the basic principle set out in art 2 of the First Directive: 'On each transaction, value added tax ... shall be chargeable after deduction of the amount of value added tax borne directly by the various cost components.' Thus, what matters is whether the taxed input is a cost component of a taxable output, not whether the most closely-linked transaction is itself taxable. As the Commission submitted at the hearing, the conclusion to be drawn from BLP Group plc v Customs and Excise Comrs is that the question to be asked is not what is the transaction with which the cost component has the most direct and immediate link but whether there is a sufficiently direct and immediate link with a taxable economic activity. Indeed, it may be stressed that in that case the court was concerned with supplies which were not objectively linked to taxable transactions (see[1995] STC 424 at 437…). Nevertheless, it remains clear from BLP that the 'chain-breaking effect' which is an inherent feature of an exempt transaction will always prevent VAT incurred on supplies used for such a transaction from being deductible from VAT to be paid on a subsequent output supply of which the exempt transaction forms a cost component. The need for a 'direct and immediate link' thus does not refer exclusively to the very next link in the chain but serves to exclude situations where the chain has been broken by an exempt supply. [Footnoted:] I agree here with the opinion delivered on30 September 1999 by the Advocate General (Saggio) in Midland Bank plc v Customs and Excise Comrs (Case C-98/98 )[2000] STC 501 at 512, para 29, where he considers that the words 'direct' and 'immediate' refer to a 'particularly close link between two transactions', in which no third transaction has taken place 'breaking the causal chain'.”
“[Faxworld Vorgründungsgesellschaft Peter Hünninghausen und Wolfgang Klein GbR ('Faxworld GbR')] is a civil-law partnership founded on1 October 1996 with the sole object of setting up the company Faxworld Telefonmarketing Aktiengesellschaft ('Faxworld AG'). 12. As the national court explains, the establishment of an Aktiengesellschaft (German company limited by shares) may, as in the case before the national court, be preceded by a Vorgründungsgesellschaft. A Vorgründungsgesellschaft is based on a preliminary agreement between the founders of the company to co-operate with a view to establishing the Aktiengesellschaft. Therefore, if that company, once established, wishes to assume the assets, rights and obligations of the Vorgründungsgesellschaft, which are not transferred to it automatically, they must be transferred by way of a separate legal transaction. 13. Thus, as a Vorgründungsgesellschaft, Faxworld GbR rented office premises, acquired fixed assets and had fixtures and fittings installed in the office premises. It also sent introductory mailings and engaged in advertising for the company to be established. After Faxworld AG was established by notarial act of28 November 1996 , Faxworld GbR ceased activities and transferred to Faxworld AG all the previously acquired assets at their book value, for a price of just under DM 90,000. Faxworld AG was thus able to take up its commercial activities in the offices rented and equipped for its purposes by Faxworld GbR, without having to take any additional measures. 14. Therefore, in performing its sole object, Faxworld GbR effected no output transactions other than the transfer of the assets it had acquired to Faxworld AG.”
“ … in contrast to the facts of the case giving rise to the judgment in Abbey National , the taxable person in the case before the national court, namely Faxworld GbR, as a Vorgründungsgesellschaft, did not even intend to effect itself taxable operations, its sole object being to prepare the activities of the Aktiengesellschaft (limited company). None the less, the VAT which Faxworld GbR wishes to deduct relates to supplies acquired for the purpose of effecting taxable transactions, even though those transactions were only the planned transactions of Faxworld AG. 42. In those precise circumstances, and in order to ensure the neutrality of taxation, it must be held that, where the member state has exercised the options provided for in arts 5(8) and 6(5) of the Sixth Directive, as a result of the fact that, according to those provisions, the recipient shall be treated as 'the successor to the transferor', a Vorgründungsgesellschaft, as the transferor, must be entitled to take account of the taxable transactions of the recipient, namely the Aktiengesellschaft, so as to be entitled to deduct the VAT paid on input services which have been procured for the purposes of the recipient's taxable operations. 43. Accordingly, the answer to the question referred by the Bundesfinanzhof must be that a partnership established for the sole purpose of founding a capital company is entitled to deduct the input tax paid on supplies of goods and services where its only output transaction in the performance of its object was to effect by formal act the transfer for consideration of the supplies obtained to that company once founded and where, because the member state concerned has exercised the options provided for in arts 5(8) and 6(5) of the Sixth Directive, a transfer of a totality of assets is not deemed to be a supply of goods or services.”
“36. Next, I should state that the result favoured by the German authorities appears to me to be inconsistent with the principle of the neutrality of VAT, in so far as it denies any right to deduct the input tax in issue, whether for Faxworld GbR or for Faxworld AG. 37. From an economic point of view, it seems clear, a single business has been set up, going through various preparatory stages before becoming operational. The continuity of the business from preparatory to operational stages—the continuity of its identity as a business — does not appear to be in any doubt. The normal operation of the VAT system requires that input tax on supplies acquired by a business at both preparatory and operational stages be deductible from its output tax (see in particular the case law cited in para 12 above). 38. Any deviation from that normal operation, and therefore from the principle of neutrality, can in my view be accepted only where there is clear authorisation in the legislation, as interpreted where appropriate by the court. 39. In the present case, from a legal point of view the preparatory and operational stages were carried out by two separate entities, a partnership and a limited company. (Although it seems plausible that the two partners in the partnership are also the (only) two shareholders in the company.) It is on that separation that the German authorities base their arguments. 40. The partnership was not set up for the purpose of effecting taxable output transactions, it did not effect any and there was at no stage any intention that it should do so. Its sole actual or intended output transaction was to sell the embryo, as yet non-operational, business to the limited company. By virtue of the German legislation implementing art 5(8) of the Sixth Directive, that transaction was not taxable. (It may be noted that under the German legislation such transactions 'are not subject to turnover tax' whereas art 5(8) authorises member states to 'consider that no supply … has taken place.' It is important none the less that a distinction be drawn between exempt supplies and those which are deemed not to have taken place (see para 10 above and para 49 below.) 41. None the less, I agree with the Commission that Faxworld GbR falls within the definition of taxable person in art 4(1) of the Sixth Directive. Its activities were undoubtedly economic in nature and neither the purpose nor the result of those activities is relevant. In that context, I consider the German government to be mistaken in its reference to Lennartz v Finanzamt München III (Case C-97/90 )[1995] STC 514 , a case which concerned acquisition for private use of goods subsequently used for taxable transactions. In the present case it is not questioned that the input supplies were acquired for business purposes and not for private consumption. 42. Furthermore, the right to deduct is not lost because no taxable output supplies were in fact made—see INZO (Case C-110/94 )[1996] STC 569 , paras 19 and 20 of the judgment and Belgium v Ghent Coal Terminal NV (Case C-37/95 )[1998] STC 260 , paras 17 and 24 of the judgment—but it is necessary according to that same case law for there to have been an intention to make such supplies, and Faxworld GbR appears to have had no intention to make such supplies itself. 43. None the less, although the partnership and the limited company in the present case are two separate legal persons, there is not only a perceptible economic continuity between them but also a degree of legal continuity. 44. Article 5(8) requires that, if no supply is considered to have taken place, the recipient should be treated as the 'successor' to the transferor. In the German version of art 5(8), the comparable word 'Rechtsnachfolger' is used. The German implementing legislation speaks of 'an die Stelle treten' (taking the place of) while German law also appears to recognise a 'Fußstapfentheorie' (see para 31 above). The French and some other language versions of art 5(8) speak of 'continuing the personality' of the transferor. 45. As I said in paras 46 and 49 of my opinion in Zita Modes Sàrl v Administration de l'Enregistrment et des Domaines (Case C-497/01 )[2005] STC 1059 , th e various formulations clearly recall the notion of universal succession, in which one person takes over all of the rights and obligations of another (limited in this context to all of the VAT rights and obligations in relation to the business transferred), so that the transferee acquires, with the business, any outstanding VAT debts and the right to deduct any input tax not already deducted against output tax on taxable transactions. (It appears however that the VAT rules in some member states require the transferor to settle all outstanding VAT accounts prior to the transfer, so that the 'succession' in such cases is confined to adjustments pursuant to art 20 of the Sixth Directive.) In Abbey National plc v Customs and Excise Comrs (Case C-408/98 )[2001] STC 297 , para 38 of the opinion I suggested, using the common metaphor of a chain of transactions for VAT purposes, that whilst one link in the chain is deemed not to exist, the result is not—as would be the case for an exempt transaction—a break and a recommencement of the chain but rather a continuing sequential relationship between the links on either side. 46. In that light, is it possible to attribute Faxworld AG's intention to make taxable supplies also to Faxworld GbR, so that the conditions for the latter to enjoy a right to deduct are met? 47. Certain provisions of the legislation and indications in the case law might appear to militate against such attribution. Under art 17(1) of the Sixth Directive, the right to deduct arises at the time when the deductible tax becomes chargeable—that is to say when input supplies are acquired—and the court stated in Lennartz v Finanzamt München III (Case C-97/90 )[1995] STC 514 , para 8 of the judgment that 'only the capacity in which a person is acting at that time can determine the existence of the right to deduct'. At the time of acquisition, Faxworld GbR was acting as a taxable person (see para 41 above), but the supplies were not intended for taxable outputs of its own. 48. None the less, I am of the view that the 'succession' provision in art 5(8) not only justifies but requires the drawing of a significant distinction between the situation with which it is concerned and other, more usual situations. 49. It must be borne clearly in mind that the effect of applying the option in art 5(8) of the Sixth Directive cannot be to create an exempt transaction. (In para 10 I have outlined the undesirable effects which such transactions may entail.) Had that been the legislator's intention, the provision would have been included in Title X of the Directive, concerning exemptions, and not in Title V, on the definition of taxable transactions. An indication of the actual purpose is given in the explanatory memorandum to the Commission's Proposal for a Sixth Directive (see the Bulletin of the European Communities, Supplement 11/73, p 10; what is now the first sentence of art 5(8) was art 5(4) in the original proposal), in which the option was described as being available 'in the interests of simplicity and so as not to overburden the resources of the undertaking'. The point is thus to avoid often large sums of tax being invoiced, paid to the state and then recovered by way of deduction of input tax. A further advantage is to protect the revenue authorities from loss of tax if the transferor is insolvent. (See for a somewhat fuller consideration, paras 19 to 32 of my opinion in Zita Modes Sàrl v Administration de l'Enregistrment et des Domaines (Case C-497/01 )[2005] STC 1059 .) 50. If input VAT borne by the assets of a transferred business could not be deducted, there would be not inconsiderable distortion of competition, in comparison with other businesses. And, as the court reiterated in Abbey National plc v Customs and Excise Comrs (Case C-408/98 )[2001] STC 297 , para 24 of the judgment, the deduction system is meant to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities, ensuring complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT. 51. In the present case, the assets transferred were acquired by Faxworld GbR for the future purposes of taxable output transactions to be made by Faxworld AG, and thus form cost components of those transactions. There is, moreover, a direct and immediate link between the input supplies and the taxable output transactions which give rise to the right to deduct (see Abbey National , para 25 of the judgment, and the case law cited there) since, by the operation of art 5(8), no intervening transaction is deemed to have taken place between the acquisition of those supplies and their use for the purposes of the output transactions. Faxworld AG is the successor—or 'continues the person'—of Faxworld GbR. At the time when the right to deduct arose—that is to say, when the input tax became chargeable—Faxworld GbR was acting as a taxable person within the meaning of art 4(1) of the Sixth Directive. The conditions for deduction are thus in my view met.”
“25. As regards the classification of Faxworld GbR as a taxable person, art 4(1) of the Sixth Directive provides that any person who independently carries out in any place any economic activity specified in para 2 of that article, whatever the purpose or results of that activity, is to be regarded as a taxable person. According to para 2, the economic activities referred to in para 1 comprise all activities of producers, traders and persons supplying services. 26. Only the German government does not regard Faxworld GbR as a taxable person within the meaning of the Sixth Directive, on the ground that the partnership never carried out any economic activity. In support of that argument, it submits … that all of Faxworld GbR's input activities were intended solely to prepare the economic activities of a different legal entity which was yet to be established, namely Faxworld AG ... 27. Those arguments cannot be upheld. First, art 4 of the Sixth Directive gives VAT a very wide scope, comprising all stages of production, distribution and the provision of services... 28. According to settled case law, a person who acquires goods for the purposes of an economic activity within the meaning of art 4 does so as a taxable person … even if the goods are not used immediately for such economic activities … Contrary to what the German government argues, the validity of those findings is in no way limited by the identity of the person whose economic activity is in question. … 30. A partnership such as Faxworld GbR must therefore be regarded as a taxable person within the meaning of the Sixth Directive.”
“… each Member State may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organisational links.”
“Where under sections 43A to 43D any bodies corporate are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member, and— ( a ) any supply of goods or services by a member of the group to another member of the group shall be disregarded; and ( b ) any supply which is a supply to which paragraph ( a ) above does not apply and is a supply of goods or services by or to a member of the group shall be treated as a supply by or to the representative member; and ( c ) any VAT paid or payable by a member of the group on the acquisition of goods from another member State or on the importation of goods from a place outside the member States shall be treated as paid or payable by the representative member … and all members of the group shall be liable jointly and severally for any VAT due from the representative member.”
“(1) Two or more bodies corporate are eligible to be treated as members of a group if each is established or has a fixed establishment in the United Kingdom and— ( a ) one of them controls each of the others, ( b ) one person (whether a body corporate or an individual) controls all of them, or ( c ) two or more individuals carrying on a business in partnership control all of them. (2) For the purposes of this section a body corporate shall be taken to control another body corporate if it is empowered by statute to control that body's activities or if it is that body's holding company within the meaning ofsection 736 of the Companies Act 1985 .”
“… [section 43 is] not designed to confer exemption or relief from tax. [It is] designed to simplify and facilitate the collection of tax by treating the representative member as if it were carrying on all the businesses of the other members as well as its own, and dealing on behalf of them all with non-members. … the purpose of [section 43 is] to enable a group to be treated as if it were a single taxable entity, even though it is not expressed in those terms. The section may have the effect of deferring the charge to tax upon the added value of goods until they are the subject of a supply outside the group, but it does not prevent that charge.”
“…[section 43] states that, where any bodies are treated as members of a group, any business carried on by a member of the group shall be treated as carried on by the representative member. [Sub] brought with it into the group registration the amounts which had been credited to it as input tax which had been attributed to supplies which were not yet treated as taxable, and [Branch] brought into the group the value of the continuous supply of services for which it had not yet paid and not yet been issued with a tax invoice. The question raised by [Reg 34] as to whether, after the group registration, these supplies were used or appropriated for use in making an exempt supply must be answered by applying the rule which [section 43] lays down, that any business carried on by any member of the group must be treated as carried on by the representative member. For the purposes of this exercise the business carried on by [Branch] must be treated as carried on by [Sub] as the representative member. As that business involved the making of exempt supplies outside the group to customers of [Branch], [Sub] as the representative member must be treated as having used at least part of the supplies which were attributed to an intended taxable supply for the purpose of obtaining credits of input tax in making exempt supplies. So the requirements of [Reg 34] are satisfied, with the result that [Reg 34] under which the assessments were made becomes applicable. I think that the tribunal put the point correctly when it said that this reconstruction of the transactions for VAT purposes, so that inward supplies from outside actually made to [Sub] may be looked at with regard to the outward supplies actually made by [Branch], follows from the effect of [section 43] … This conclusion is not easy to grasp if regard is had to what was happening in the real world. But the statutory scheme does not always follow the real world. The guiding principle as to relief for input tax as against output tax is that of fiscal neutrality (see Rompelman … ). It is satisfactory to find that the various statutory rules which must be applied in this case have produced a result which is consistent with that principle.”
“In my opinion the true basis of the Svenska case is not that the taxable inputs were deemed to have been accumulated and then used all at once by [Sub] in making exempt supplies after [Sub] and Branch had become part of the same group. Nor does it decide that it is in principle possible for the commissioners under [Reg 34] to reattribute to exempt use the inputs which in real life had already been used with the intention of making taxable supplies, simply on the basis of a later change in the nature of the economic activity. That would be contrary to the principle of the Ghent Coal case. The decision in the Svenska case turned on the special effect of the grouping provisions, which, as the House decided, made it necessary to treat the inputs to [Sub] as having been inputs to the group and used by the group to make exempt supplies at the time that Branch so used them . This appears most clearly from the speech of Lord Hope … [the passage cited above]. Thus the effect of [section 43] was that [Sub] was treated as never having carried on the economic activity of making supplies of services. It was the group which was treated as having acquired the input services supplied to [Sub] and the group which was treated as having used them for the economic activity of making exempt services supplied by Branch. The case is not authority for the proposition that, for the purposes of [Reg 34], one can retrospectively form a new intention about the use of goods or services which have already been used, like the right to occupy premises for a period which has expired. I would therefore allow the appeal and restore the decision of the tribunal.”
“[Article 4(4)] allows two or more persons, though legally independent and thus capable of being regarded as separate taxable persons, to be treated as a single taxable person for the purposes of the application of the common system of VAT where they are closely bound to one another by financial, economic and organisational links. The question which arises is whether that option enables a member state to treat two persons who are closely bound to one another as a single taxable person where it is established that one of those persons does not engage in any 'economic activities' within the meaning of art 4 of the directive. In my view, that question must be answered in the negative. I share the Commission's view that, in order to establish whether there is liability to tax, it is necessary to focus on the activities of each legal person separately, and not on the activities of the concern as a whole. The second sub-paragraph of art 4(4) of the Sixth Directive does not derogate from that principle: it is a rule designed to simplify matters which enables the tax authorities to treat as a single person for the purposes of the application of VAT two or more legally independent persons who engage in economic activities on their own account as a result of the close financial, economic and organisational links between them, with the result that transactions between the two do not give rise to the charging and payment of turnover tax.”
“ 15.2 What is a holding company? In its simplest sense, a holding company describes a company with shareholdings in one or more subsidiaries. The structure and purpose of holding companies can, however, be diverse, ranging from companies with minimal activities where shares are held in subsidiaries and dividends received, but no part is played in management of the investment, to businesses fully integrated with trading subsidiaries and where the holding company is actively concerned with the supervision and management of the subsidiaries. The basic functions of a holding company are the: ∙ acquisition of shares in subsidiaries; ∙ receipt of dividends arising from the shareholdings; ∙ defence of itself and its subsidiaries from takeovers; and ∙ disposal of shares in subsidiaries. These activities alone do not create 'taxable' supplies for VAT purposes and registration for VAT is not permissible if these are the only activities of the holding company. 15.3 When can a holding company register for VAT? There are no special rules for holding companies. To be registered for VAT, the holding company must make or intend to make taxable supplies. These may consist, wholly or partly, of supplies of management services to one or more of the holding company's subsidiaries. In instances where a holding company is registered solely because of its supplies of management services, you should satisfy yourself that the invoiced charges do represent actual supplies of services performed and are not simply charges raised on non-existent supplies in order to allow the holding company to register. A holding company, having only the activities shown in paragraph 15.2, can join a group registration comprising some or all of its subsidiary companies provided those companies make taxable supplies outside the group. In some complex holding situations a holding company may even be registered as part of a VAT Group although the companies in which it holds shares are outside the VAT Group. The key point is that the holding company is part of a VAT Group, some of whose members make supplies outside the group. 15.4 What input tax can holding companies deduct? Holding companies having only the non-business activities referred to in paragraph 15.2 cannot register for VAT in their own capacity and are therefore unable to recover the VAT they incur. However, once a holding company is registered by dint of making the taxable supplies referred to in paragraph 15.3, it is for the time being entitled to treat as input tax all VAT incurred on expenditure that relates to the management of its subsidiaries including VAT that relates to the activities referred to in paragraph 15.2. For partly exempt holding companies, input tax on overheads is treated as residual input tax. This administrative concession is permitted in order to reduce burdens on businesses and to ensure that holding companies based in the UK receive similar treatment to that applied elsewhere in the EC.”
“ In the event of a transfer, whether for consideration or not or as a contribution to a company, of a totality of assets or part thereof, Member States may consider that no supply of goods has taken place and in that event the recipient shall be treated as the successor to the transferor.”
“25. It is true that an undertaking whose activity is subject to VAT is entitled to deduct the tax on the services supplied by accountants or legal advisers for the taxable person's taxable transactions and that if BLP had decided to take out a bank loan for the purpose of meeting the same requirements, it would have been entitled to deduct the VAT on the accountant's services required for that purpose. However, that is a consequence of the fact that those services, whose costs form part of the undertaking's overheads and hence of the cost components of the products, are used by the taxable person for taxable transactions. 26. In that respect it should be noted that a trader's choice between exempt transactions and taxable transactions may be based on a range of factors, including tax considerations relating to the VAT system. The principle of the neutrality of VAT, as defined in the case law of the court, does not have the scope attributed to it by BLP. That the common system of VAT ensures that all economic activities, whatever their purpose or results, are taxed in a wholly neutral way, presupposes that those activities are themselves subject to VAT (see in particular Rompelman v Minister van Financiën (Case 268/83) [1985] ECR 655 at 664, para 19).”
“… it is necessary … for there to have been an intention to make such supplies, and Faxworld GbR appears to have had no intention to make such supplies itself.”
“This conclusion is not easy to grasp if regard is had to what was happening in the real world. But the statutory scheme does not always follow the real world. The guiding principle as to relief for input tax as against output tax is that of fiscal neutrality (see Rompelman … ). It is satisfactory to find that the various statutory rules which must be applied in this case have produced a result which is consistent with that principle.”