C-42/19 Sonaecom

JUDGMENT OF THE COURT (First Chamber)

12 November 2020 ( *1 )

(Reference for a preliminary ruling – Value added tax (VAT) – Sixth Directive 77/388/EEC – Article 4 – Concept of ‘taxable person’ – Mixed holding company – Article 17 – Right to deduct input VAT – Input VAT paid by a mixed holding company in respect of consultancy services relating to a market study with a view to the possible acquisition of shareholdings in other companies – Abandonment of proposed acquisition – Input VAT paid on a bank commission for organising and putting together a bond loan, intended to provide subsidiaries with the necessary means to make investments – Investments not made)

In Case C‑42/19,

REQUEST for a preliminary ruling under Article 267 TFEU from the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal), made by decision of 5 December 2018, received at the Court on 24 January 2019, in the proceedings

Sonaecom SGPS SA

v

Autoridade Tributária e Aduaneira,

THE COURT (First Chamber),

composed of J.-C. Bonichot, President of the Chamber, L. Bay Larsen, C. Toader, M. Safjan and N. Jääskinen (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 12 February 2020,

after considering the observations submitted on behalf of:

Sonaecom SGPS SA, by J. Vieira Peres, A. Lobo Xavier, G. Machado Borges, I. Santos Fidalgo and A. Carrilho Ribeiro, advogados,

the Portuguese Government, by L. Inez Fernandes, R. Campos Laires, T. Larsen and P. Barros da Costa, acting as Agents,

the European Commission, by M. Afonso, P. Costa de Oliveira and N. Gossement, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 14 May 2020,

gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of Article 4(1) and (2) and Article 17(1)(2) and (5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) (‘the Sixth Directive’).

2The request has been made in proceedings between Sonaecom SGPS SA (‘Sonaecom’) and the Autoridade Tributária e Aduaneira (Tax and Customs Authority, Portugal) concerning the deductibility of input value added tax (VAT) paid by Sonaecom in respect of expenditure relating, first, to consultancy services connected with a market study commissioned with a view to possible acquisitions of shareholdings in other companies and, secondly, to the payment to BCP Investimento SA of a commission for organising and putting together a bond loan, where neither the acquisition nor the investments, in view of which the loan was taken out, materialised.

Legal context

EU law

3The Sixth Directive was repealed and replaced by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347. p. 1) (‘the VAT Directive’).

4Article 4(1) and (2) of the Sixth Directive, applicable ratione temporis in the case in the main proceedings, provides:

‘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.’

5Article 13 of the Sixth Directive, entitled ‘Exemptions within the territory of the country’, states, in point B thereof, relating to ‘other exemptions’:

‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

…

the following transactions:

1the granting and the negotiation of credit and the management of credit by the person granting it;

…’

6Article 17 of that directive, entitled ‘Origin and scope of the right to deduct’, provides:

‘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:

value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

value added tax due or paid in respect of imported goods;

value added tax due under Articles 5(7)(a) and 6(3).

…

5. 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.

This proportion shall be determined, in accordance with Article 19, for all the transactions carried out by the taxable person.

However, Member States may:

authorise the taxable person to determine a proportion for each sector of his business, provided that separate accounts are kept for each sector;

compel the taxable person to determine a proportion for each sector of his business and to keep separate accounts for each sector;

authorise or compel the taxable person to make the deduction on the basis of the use of all or part of the goods and services;

authorise or compel the taxable person to make the deduction in accordance with the rule laid down in the first subparagraph, in respect of all goods and services used for all transactions referred to therein;

provide that where the value added tax which is not deductible by the taxable person is insignificant it shall be treated as nil.’

7Article 19 of the Sixth Directive, entitled ‘Calculation of the deductible proportion’, provides in paragraph 1 thereof:

‘The proportion deductible under the first subparagraph of Article 17(5) shall be made up of a fraction having:

as numerator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions in respect of which value added tax is deductible under Article 17(2) and (3),

as denominator, the total amount, exclusive of value added tax, of turnover per year attributable to transactions included in the numerator and to transactions in respect of which value added tax is not deductible. The Member States may also include in the denominator the amount of subsidies, other than those specified in Article 11 A(1)(a).

The proportion shall be determined on an annual basis, fixed as a percentage and rounded up to a figure not exceeding the next unit.’

8Article 20 of the Sixth Directive, entitled ‘Adjustments of deductions’, provides in paragraph 6 thereof:

‘Where the taxable person transfers from being taxed in the normal way to a special scheme or vice versa, Member States may take all necessary measures to ensure that the taxable person neither benefits nor is prejudiced unjustifiably.’

9Under Article 413 of the VAT Directive, that directive entered into force on 1 January 2007.

Portuguese law

The CIVA

10In accordance with Article 9(28) of the Código do Imposto sobre o Valor Acrescentado (Portuguese Code on Value Added Tax), in the version applicable at the material time (‘the CIVA’):

‘The following shall be exempt from tax:

the granting and negotiation of credit, in any form, including discount and rediscount transactions, and the administration and management of credit by the person who granted it;

…

transactions and services, including negotiation, but excluding mere safekeeping, administration or management, relating to shares, other interests in companies or associations, debentures and other securities, excluding documents establishing title to goods’.

11Article 20 of the CIVA, which lists the situations in which input VAT paid by a taxable person may be deducted, provides in paragraph 1 thereof:

‘Only tax charged on goods or services acquired, imported or used by a taxable person for the purpose of carrying out the following transactions may be deducted:

the supply of goods and the provision of services which are subject to tax and are not exempt;

…’

12Article 23(1) and (4) of the CIVA is worded as follows:

‘1. Where the taxable person, in the course of his or her business, makes supplies of goods or services some of which do not give rise to the right to deduct, input tax shall be deductible only in direct proportion to the annual amount of the transactions which give rise to the right to deduct.

…

4. The specific proportion of deduction referred to in paragraph 1 shall be made up of a fraction having, as numerator, the amount, exclusive of VAT, of turnover per year attributable to the supply of goods and provision of services in respect of which VAT is deductible under Articles 19 and 20(1) and, as denominator, the amount, exclusive of VAT, of turnover per year of all the transactions carried out by the taxable person, including exempt transactions and those outside the scope of the tax, particularly grants not subject to VAT which are not subsidies for plant or equipment.

…’

Decree-Law No 495/88

13Article 1(1) and (2) of Decreto-Lei No 495/88 (Decree-Law No 495/88) of 30 December 1988 (Diário da República I, Serie I, No 301 of 30 December 1988), which governs the legal status and activities of sociedades gestoras de participações sociais (SGPS), in the version applicable to the facts in the main proceedings, provides:

‘1. The sole business purpose of [SGPS] is to manage the shares of other undertakings, as an indirect means of pursuing economic activities.

2. For the purposes of this Decree-Law, the shareholding in a company is regarded as an indirect means of pursuing economic activities when it is not simply occasional and concerns at least 10% of the minimum share capital, with voting rights, either directly or through share in other companies in which SGPS occupy a dominant position.’

14Article 4 of Decree-Law No 495/88 provides:

‘1. SGPS are authorised to provide technical administrative and management services to some or all companies in which they have a shareholding as defined in Article 1(2) and Article 3(3)(a) to (c), or with which they have concluded a subordination agreement.

2. The supply of services must be the subject of a written contract, in which the corresponding remuneration must be indicated.’

The dispute in the main proceedings and the questions referred for a preliminary ruling

15The applicant in the main proceedings is a holding company which, in addition to its business of acquiring, holding and managing shareholdings, provides strategic management and coordination services to companies operating in the telecommunications, media, software and systems integration markets.

16In the course of its business, during 2005 Sonaecom purchased, under the VAT rules, external consultancy services in the form of a market study with a view to acquiring shares in the telecommunications operator Cabovisão. According to its statements, Sonaecom intended to carry out the economic activity of providing Cabovisão with management services subject to VAT. The share acquisition did not ultimately materialise.

17In addition, in June 2005, the applicant in the main proceedings paid the investment bank BCP Investimento a commission for services relating to the organisation, putting together and guarantee of a placement of a bond loan amounting to EUR 150 million. It is apparent from the order for reference that that loan was intended to provide the subsidiaries of Sonaecom with the resources they needed to make direct investments in ‘triple play’ technology. According to the information provided by Sonaecom at the hearing, by contrast, the company intended to use the capital thus obtained to acquire shares in Cabovisão and thus to invest in the new ‘triple play’ business segment.

18Since those proposed investments did not materialise, the applicant in the main proceedings subsequently chose to make that capital available to its parent company, Sonae SGPS, in the form of a loan.

19In the same tax year, Sonaecom deducted in full from the VAT payable the corresponding amounts of input VAT paid in relation to the services purchased.

20Following an inspection carried out by the tax authorities, those authorities challenged the VAT deduction thus made, taking the view that the purpose of purchasing the services at issue in the main proceedings was not to carry out taxed output transactions, in accordance with Article 17(2) and (3) of the Sixth Directive and Article 20 of the CIVA.

21The tax authorities therefore made arithmetical adjustments, which gave rise to notices of assessment to VAT and compensatory interest in a total amount of EUR 1088 675.77.

22Sonaecom brought an action against those assessments before the Tribunal Administrativo e Fiscal do Porto (Administrative and Tax Court, Porto, Portugal). By judgment of 28 June 2016, that court dismissed the action on the ground that the VAT paid by the applicant was not deductible.

23Sonaecom appealed against that judgment to the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal).

24Before the referring court, the applicant in the main proceedings, which relies on its status as a mixed holding company and maintains that its involvement in the management of its subsidiaries is recurrent in nature, submits that the services at issue in the main proceedings were linked not to the activity of ‘holding and managing shareholdings’ but to the activity which it carries out in the field of providing technical and management services to its subsidiaries, an activity subject to VAT and for which it receives consideration.

25Consequently, since there is undeniably a direct link between the services supplied for the benefit of its subsidiaries and the purchase of the services at issue in the main proceedings, the input VAT paid is deductible.

26The applicant in the main proceedings adds that the fact that the acquisition of shareholdings has not materialised is irrelevant and does not call into question the fact that the services were purchased in the context of an activity which entails carrying out transactions subject to VAT.

27In those circumstances the Supremo Tribunal Administrativo (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Is it compatible with the deductibility rules laid down in the [Sixth Directive], specifically Articles 4(1) and (2) and 17(1),(2) and (5), to deduct tax borne by the appellant, [Sonaecom], in respect of consultancy services connected with a market study commissioned with a view to acquiring shares, where that acquisition did not materialise?

Is it compatible with the deductibility rules laid down in the [Sixth Directive], specifically Articles 4(1) and (2) and 17(1),(2) and (5), to deduct tax borne by the appellant, [Sonaecom], in respect of the payment to [BCP Investimento] of a commission for organising and putting together a bond loan, allegedly taken out with a view to integrating the financial structure of its affiliated companies, and which, since those investments failed to materialise, was ultimately transferred to Sonae, SGPS, the parent company of the group?’

Consideration of the questions referred

The first question

28By its first question, the referring court asks the Court, in essence, whether Article 4(1) and (2) and Article 17(1),(2) and (5) of the Sixth Directive must be interpreted as meaning that a holding company whose involvement in the management of its subsidiaries is recurrent is entitled to deduct the input VAT paid on the purchase of consultancy services relating to a market study carried out with a view to acquiring shares in another company, where that acquisition did not ultimately take place.

29As a preliminary point, it must be noted that the VAT Directive, which entered into force on 1 January 2007, repealed the Sixth Directive without making material changes to that directive. Since the relevant provisions of the VAT Directive have essentially the same scope as that of the relevant provisions of the Sixth Directive, the Court’s case-law on the VAT Directive is also applicable to the Sixth Directive (see, by analogy, judgment of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge, C‑316/18, EU:C:2019:559, paragraph 17).

30In that context, it must be borne in mind, in the first place, that, according to settled case-law, a company whose sole object is to acquire shares in other companies without direct or indirect involvement in the management of those companies neither has the status of taxable person within the meaning of Article 4 of the Sixth Directive nor the right to deduct tax under Article 17 of that directive. The mere acquisition and holding of shares in a company do not, in themselves, amount to an economic activity within the meaning of the Sixth Directive, conferring on the holder the status of a taxable person, since the mere acquisition of financial holdings in other undertakings cannot be regarded as the exploitation of property for the purpose of obtaining income therefrom on a continuing basis. Any dividend yielded by that holding is merely the result of ownership of the property (judgments of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraphs 27 and 28, and of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 16 and the case-law cited).

31It 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, if that entails carrying out transactions which are subject to VAT, such as the supply of administrative, financial, commercial and technical services, without prejudice to the rights held by the holding company as shareholder (judgments of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraph 29, and of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 17 and the case-law cited).

32As the Advocate General observed in point 30 of her Opinion, a mixed holding company is a company that, in addition to its non-economic holding activity, which consists in the holding of shares in other companies and is not subject to VAT, also carries out an economic activity. According to the case-law, a mixed holding company which not only holds shares in companies, but also supplies remunerated, taxable services to some of those companies, is thus itself a taxable person, albeit entitled to only a pro rata deduction of input tax (see, to that effect, judgments of 27 September 2001, Cibo Participations, C‑16/00, EU:C:2001:495, paragraph 22, and of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraph 31).

33Furthermore, since economic activities within the meaning of the Sixth Directive may consist of several consecutive transactions, the preparatory acts must themselves be treated as constituting economic activity. Thus, any person with the intention, as confirmed by objective elements, of independently starting an economic activity, and who incurs the initial investment expenditure for those purposes must be regarded as a taxable person (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 18 and the case-law cited).

34It follows that a company which carries out preparatory acts which are part of a proposed acquisition of shares in another company with the intention of pursuing an economic activity consisting in involvement in the management of that other company by providing management services subject to VAT must be considered a taxable person, within the meaning of the Sixth Directive (see, to that effect, judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 19).

35In the present case, it is apparent from the documents before the Court that Sonaecom planned to provide to Cabovisão, whose shares it wished to acquire, management services subject to VAT and, on that basis, to pursue an economic activity within the meaning of the Sixth Directive. Therefore, and to that extent, Sonaecom, as a mixed holding company, must, in principle, be considered a taxable person, within the meaning of the Sixth Directive, which it is for the referring court to determine.

36As regards, in the second place, the right to deduct, it follows from Article 17 of the Sixth Directive that, in so far as the taxable person, acting as such at the time when he or she acquires goods or receives services, uses those goods or services for the purposes of his or her taxed transactions, he or she is entitled to deduct the VAT paid or payable in respect of those goods or services. In accordance with the first subparagraph of Article 10(2) and Article 17 of the Sixth Directive, that right to deduct arises at the time when the tax becomes chargeable, namely when the goods are delivered or the services are performed (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 21 and the case-law cited).

37The right to deduct provided for in Article 17 et seq. of the Sixth Directive is an integral part of the VAT scheme and, in principle, may not be limited. It is exercisable immediately in respect of all the taxes charged on input transactions (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 22 and the case-law cited).

38The deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his or her economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 23).

39The principle that VAT should be neutral as regards the tax burden on a business requires that the first investment expenditure incurred for the purposes of, and with the view to, commencing a business must be regarded as an economic activity; it would be contrary to that principle if such an activity commences only when taxable income arises. Any other interpretation would burden the trader with the cost of VAT in the course of his or her economic activity without allowing him to deduct it and would create an arbitrary distinction between investment expenditure incurred for the needs of a business before actual exploitation of the business or expenditure incurred during exploitation (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 24 and the case-law cited).

40Moreover, the right to deduct, once it has arisen, is retained even if the intended economic activity was not carried out and, therefore, did not give rise to taxed transactions or the taxable person was unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his or her control. Any other interpretation would be contrary to the principle that VAT should be neutral as regards the tax burden on a business. It would be liable to create, as regards the tax treatment of the same investment activities, unjustified differences between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which will in future be a source of taxable transactions. Likewise, arbitrary differences would be established between the latter businesses, in that final acceptance of the deductions would depend on whether or not the investment resulted in taxed transactions (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 25 and the case-law cited).

41Furthermore, in accordance with settled case-law, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is, in principle, necessary before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them is a component of the cost of the output transactions giving rise to the right to deduct (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 26 and the case-law cited).

42However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the services in question are part of his or her general costs and are, as such, components of the price of the goods or services which he or she supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (judgment of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 27 and the case-law cited).

43The Court has held that the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management and which, on that basis, carries out an economic activity must be regarded as belonging to its general costs and the VAT paid on that expenditure must, in principle, be deducted in full, unless certain output economic transactions are exempt from VAT under the Sixth Directive, in which case the right to deduct should have effect only in accordance with the procedures laid down in Article 17(5) of that directive (judgment of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 33).

44In the present case, it appears from the documents before the Court that the consultancy services at issue in the main proceedings were purchased in the context of Sonaecom’s intended acquisition of shareholdings in a company and that Sonaecom intended to carry out, for the benefit of that company, the economic activity of providing it with management services subject to VAT, which it is for the referring court to verify.

45Thus, since, in accordance with the case-law of the Court, the costs relating to those consultancy services are part of Sonaecom’s general costs in respect of the economic activity which it carries out in its capacity as a mixed holding company, that company enjoys, in principle, the right to deduct in full the VAT paid on those services.

46In addition, as has been pointed out in paragraph 40 above, the fact that, ultimately, the transaction did not materialise has no effect on the right to deduct VAT, which is retained.

47It should nevertheless be specified that if it should transpire that the applicant in the main proceedings supplied services subject to VAT, which are characteristic of its economic activity, only to some of its subsidiaries, which it is for the referring court to verify, the VAT paid on the general costs can be deducted only in proportion to those inherent to the economic activity of the applicant in the main proceedings in its capacity as a taxable person, in accordance with a method which it is for the Member States to determine (see, to that effect, judgment of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraph 37).

48In that regard, it must be borne in mind that, when exercising that power, Member States must have regard to the aims and broad logic of the Sixth Directive and, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to each of the economic and non-economic activities (see, to that effect, judgment of 5 July 2018, Marle Participations, C‑320/17, EU:C:2018:537, paragraph 37 and the case-law cited).

49In the light of all the foregoing considerations, the answer to the first question referred for a preliminary ruling is that Article 4(1) and (2) and Article 17(1), (2) and (5) of the Sixth Directive must be interpreted as meaning that a mixed holding company whose involvement in the management of its subsidiaries is recurrent is entitled to deduct the input VAT paid on the purchase of consultancy services relating to a market study carried out with a view to acquiring shares in another company, including where that acquisition did not ultimately take place.

The second question

50By its second question referred for a preliminary ruling, the referring court asks the Court, in essence, whether Article 4(1) and (2) and Article 17(1),(2) and (5) of the Sixth Directive must be interpreted as meaning that a mixed holding company whose involvement in the management of its subsidiaries is recurrent is entitled to deduct the input VAT paid on the commission paid to a credit institution for organising and putting together a bond loan intended for making investments in a given sector, where those investments did not ultimately take place and the capital obtained by means of that loan was paid in full to the parent company of the group in the form of a loan.

51In order to answer that question it is necessary to determine whether, in accordance with Article 17 of the Sixth Directive, for the purposes of deducting input VAT paid on services, account is to be taken of the intended use or actual use made of those services by the taxable person.

52Under Article 17(2)(a) of the Sixth Directive, the taxable person is entitled to deduct input tax in so far as the goods and services ‘are used’ for the purposes of his or her taxable transactions.

53Consequently, and as the Advocate General observed in point 54 of her Opinion, it follows from the wording of that provision that the right to deduct input tax is founded on an approach which is principally based on the actual use of the goods and services purchased by the taxable person.

54An analysis of the context of which that provision forms part and of its purpose and that of the Sixth Directive support that literal interpretation.

55As regards the context of which Article 17(2)(a) of the Sixth Directive forms part, it should be noted that, with regard to the deductibility of input tax paid on mixed-use goods, sub-subparagraphs (a) to (d) of the third subparagraph of Article 17(5) of that directive list various corrective measures which the Member States may adopt in order, inter alia, to apply more precise rules for calculating the deductible proportion than that laid down in the second subparagraph of Article 19(1) of that directive, taking account of the specific characteristics of the activities of the taxable person concerned.

56In that context, as the Advocate General observed in point 55 of her Opinion, Member States may provide for calculation methods different from the turnover-based allocation key provided for in the Sixth Directive if the method chosen guarantees a more precise result (see, to that effect, judgment of 8 November 2012, BLC Baumarkt, C‑511/10, EU:C:2012:689, paragraphs 23 to 26, and of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft, C‑332/14, EU:C:2016:417, paragraph 33).

57In addition, it is apparent from Article 20(6) of the Sixth Directive, which concerns the adjustment of the deduction of input tax, that that deduction must, as the Advocate General observed in point 55 of her Opinion, be adjusted as precisely as possible to actual use in order to avoid ‘unjustified benefits’ or ‘unjustified prejudice’ for the taxable person.

58Thus, it follows not only from Article 17(2)(a), but also from other provisions of the Sixth Directive that that directive is based on the logic that the deduction of input tax paid by the taxable person must correspond as precisely as possible to the actual use of the goods and services purchased by him or her.

59Consequently, an actual use of goods and services takes precedence over the initial intention.

60As regards the purpose of Article 17(2)(a) of the Sixth Directive and that directive taken as a whole, it should be noted that an approach according to which the right to deduct input VAT is based solely on the intention of the taxable person as regards the use of the goods and services purchased, not on their actual use, would risk undermining the very functioning of the VAT system.

61As pointed out, in paragraph 38 above, the deduction arrangement is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his or her economic activities. The common system of VAT therefore ensures complete neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject to VAT (judgments of 14 February 1985, Rompelman, 268/83, EU:C:1985:74, paragraph 19, and of 28 February 2018, Imofloresmira – Investimentos Imobiliários, C‑672/16, EU:C:2018:134, paragraph 38 and the case-law cited).

62The principle of fiscal neutrality, inherent in the common system of VAT, precludes, in particular, economic operators who carry out transactions which are, in fact, similar from being treated differently as far as the levying of VAT is concerned, in order to avoid distortions of competition (see, to that effect, judgment of 10 September 2002, Kügler, C‑141/00, EU:C:2002:473, paragraph 30 and the case-law cited).

63The application of that principle thus implies, first, that all taxable persons who carried out transactions taxed during the same tax period have the right to deduct input VAT, but it also implies that, a contrario, those who have carried out similar transactions, but which are exempt from VAT, are not entitled to such a right.

64In that context, Article 17(2) and (3) of the Sixth Directive provides that a taxable person is entitled to deduct input tax paid only in respect of the goods and services which have a link with taxable output transactions. On the other hand, where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (see, to that effect, judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 30 and the case-law cited).

65As the Advocate General observed in point 58 of her Opinion, a right to deduct input tax existing solely on the basis of a former intention of the taxable person to carry out transactions subject to VAT and which does not, therefore, take account of the nature of the transactions actually carried out by that taxable person would afford him or her a competitive advantage over other undertakings which have carried out similar transactions, which would as a consequence be contrary to the principle of fiscal neutrality.

66Thus, in accordance with Article 17 of the Sixth Directive, for the purposes of deducting input VAT paid on services, account must be taken of the actual use of the goods and services purchased by the taxable person, not of the use intended by him or her.

67In the present case, as has been noted in paragraphs 17 and 18 above, it is apparent from the order for reference that, during 2005, the applicant in the main proceedings paid VAT on the payment of a commission to BCP Investimento for organising and putting together a bond loan of EUR 150 million, in order to finance its investments in the ‘triple play’ sector. Nevertheless, as those proposed investments did not materialise, the applicant in the main proceedings subsequently chose to make that amount available to its parent company, Sonae SGPS, in the form of a loan.

68Since that loan transaction, which represents the actual use made of the services purchased by the applicant in the main proceedings, is among the transactions exempted under Article 13B(d)(1) of the Sixth Directive, that company cannot be entitled, under Article 17 of that directive, to deduct from the tax which it is liable to pay the input VAT paid on the commission paid to BCP Investimento.

69As noted in paragraph 17 above, according to the information provided by it at the hearing, Sonaecom intended to use the capital obtained by means of the loan to acquire shares in Cabovisão and thus to invest in the new ‘triple play’ business segment, not to provide its subsidiaries with resources enabling them to make investments in that sector, as is apparent from the order for reference. Nevertheless, even if it were established, that circumstance does not alter the conclusion in paragraph 68 above, since it relates not to the actual use of the services purchased by the applicant in the main proceedings but only to that initially intended by it.

70Nor can that conclusion be called into question by the applicant’s argument that, although there is no direct link between the costs incurred for the issue of the bond loan and a taxed output transaction, those costs are deductible as general costs of the undertaking.

71As the Advocate General observed in point 64 of her Opinion, there is a direct and immediate link between the upstream services purchased by the applicant in the main proceedings and an exempt output transaction, namely the grant of a loan to its parent company.

72In the light of those considerations, the answer to the second question is that Article 4(1) and (2) and Article 17(1),(2) and (5) of the Sixth Directive must be interpreted as meaning that a mixed holding company whose involvement in the management of its subsidiaries is recurrent is not entitled to deduct input VAT on the commission paid to a credit institution for organising and putting together a bond loan, which was intended for making investments in a given sector, where those investments did not ultimately take place and the capital obtained by means of that loan was paid in full to the parent company of the group in the form of a loan.

Costs

73Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (First Chamber) hereby rules:

Article 4(1) and (2) and Article 17(1), (2) and (5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning that a mixed holding company whose involvement in the management of its subsidiaries is recurrent is entitled to deduct the input value added tax paid on the purchase of consultancy services relating to a market study carried out with a view to acquiring shares in another company, including where that acquisition did not ultimately take place.

Article 4(1) and (2) and Article 17(1),(2) and (5) of Sixth Directive 77/388 must be interpreted as meaning that a mixed holding company whose involvement in the management of its subsidiaries is recurrent is not entitled to deduct input value added tax paid on the commission paid to a credit institution for organising and putting together a bond loan, which was intended for making investments in a given sector, where those investments did not ultimately take place and the capital obtained by means of that loan was paid in full to the parent company of the group in the form of a loan.

Signatures

[Signatures]

( *1 ) Language of the case: Portuguese

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 14 May 2020 ¹

(Request for a preliminary ruling — Common system of value added tax (VAT) — Directive 77/388/EEC — Concept of taxable person — Holding company — Mixed holding company — Deduction of input tax — Expenditure for consultancy services and for the issue of corporate bonds with a view to acquiring another company — Change in planned output transactions)

I. Introduction

1The Court has already considered the right to deduct of holding companies several times. ² Nevertheless, this continues to present problems in practice, in particular where a holding company merely manages shares in certain companies, but supplies taxable services to other companies owned by it (‘mixed holding company’).

2In the present case, Sonaecom SGPS, SA (‘Sonaecom’) wished to acquire shares in an undertaking and then to supply taxable services to it. In preparation for the transaction, it used consultancy services and services relating to the issue of corporate bonds. Sonaecom claimed a deduction on that basis. However, this was refused by the Portuguese tax authority on the ground that, in particular, Sonaecom was not able to make the investments and instead made the capital raised available to the parent company of the group as an exempt loan.

3In these proceedings the Court will, in particular, have to clarify what effects the change from the planned activity to the actual activity has on the deduction of input tax.

II. Legal framework

A. EU law

4The framework of the request for a preliminary ruling in EU law is provided by Directive 77/388/EEC (‘the Sixth Directive’), ³ which has now been repealed by Directive 2006/112/EC (‘the VAT Directive’). ⁴ The relevant provisions of the two directives are substantively identical to a large extent.

5Under point 1 of the first subparagraph of Article 2 of the Sixth Directive (now Article 2(1)(a) to (c) of the VAT Directive), the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such is to be subject to value added tax.

6Article 4(1) of the Sixth Directive (now the first subparagraph of Article 9(1) of the VAT Directive) defines ‘taxable person’ as follows:

‘“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.’

7Article 13(B)(d)(1) of the Sixth Directive (now Article 135(1)(b) of the VAT Directive) provides for exemptions within the territory of the country:

‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

the following transactions:

1. the granting and the negotiation of credit and the management of credit by the person granting it’.

8Article 17(1) and (2)(a) of the Sixth Directive (now Articles 167 and 168(a) of the VAT Directive) governs the origin and scope of the right to deduct:

‘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:

value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person’.

B. Portuguese law

9In the period at issue, Article 9(28)(a) of the Código do Imposto sobre o Valor Acrescentado (Portuguese Code on Value Added Tax) provided:

‘The following shall be exempt from tax:

28.

the granting and negotiation of credit, in any form, including discount and rediscount transactions, and the administration and management of credit by the person who granted it’.

III. Facts and main proceedings

10Sonaecom is a holding company which acquires, holds and manages shares with full rights to the resulting income. In addition, it manages and provides strategic coordination to companies operating in the telecommunications, media, software and systems integration markets. Sonaecom asserts that it received due consideration for the management and strategic coordination services, which were taxed at the full rate of VAT.

11In 2005, Sonaecom wished to invest in the new business segment ‘Triple Play’, which combines audiovisual entertainment, telephony and internet. To that end, Sonaecom used consultancy services provided by two undertakings which studied the market with a view to Sonaecom’s possible acquisition of shares in the telecommunications provider CabovisãosEUR 212 627.56 in VAT was incurred in respect of those services.

12In addition, Sonaecom paid a taxable commission to an investment bank to organise, put together and guarantee the placement of a private issue of bonds known as ‘Sonaecom-SGPS-2005-bonds’ with a value of EUR 150000000. EUR 769 500.00 in VAT was incurred. Sonaecom asserts that it planned to use the capital thus obtained to acquire shares in Cabovisão and then to provide taxable technical support and management services to that company.

13However, the acquisition of the shares in Cabovisão did not materialise. Sonaecom thereupon made available the capital obtained through the issue of the bonds to the parent company of the group, Sonae SGPS SA, as a loan.

14Sonaecom made a deduction of a total sum of EUR 982 127.56 for 2005 in respect of the VAT arising for the consultancy services (in the return for December 2005) and the commission (in the return for June 2005).

15Following an audit, the Autoridade Tributária e Aduaneira (Tax and Customs Authority, Portugal) adjusted the tax in 2008 and demanded payment of the tax declared plus EUR 106 548.20 in compensatory interest, making a total of EUR 1088 675.77. As grounds, it stated that, first, the acquisition of shares fell outside the scope of VAT and, second, the granting of credit was exempt under Article 13(B)(d)(1) of the Sixth Directive.

16The action brought against those assessment notices in October 2008 was dismissed by the Tribunal Administrativo e Fiscal do Porto (Porto Administrative and Tax Court, Portugal) in 2016. The VAT for the consultancy services was not deductible because the intended acquisition and management of shares were not economic activities. The VAT in respect of the commission for the issue of bonds was not deductible because the capital had been transferred in full to the parent company of the group and Sonaecom had not demonstrated that that capital benefited the affiliated companies or that it had been employed in an output transaction that gives rise to the right to deduct VAT.

17Sonaecom lodged an appeal against that judgment. Sonaecom claims that, by their nature, the acquisitions at issue must at least be regarded as forming part of the costs which it had to incur in order to be able properly to supply the services which it regularly provides for its affiliates. Its interventions in the management of those companies are repeated and significant, in particular through cooperation in the development of their strategy and in the provision of services for remuneration and, in turn, it therefore frequently needs to procure a huge variety of supplies and services.

IV. Request for a preliminary ruling and procedure before the Court

18By order of 5 December 2018, which was received at the Court on 24 January 2019, the Supremo Tribunal Administrativo (Supreme Administrative Court, Portugal) referred the following questions to the Court for a preliminary ruling pursuant to Article 267 TFEU:

Is it compatible with the deductibility rules laid down in the Sixth VAT Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax borne by the appellant, Sonaecom SGPS, in respect of consultancy services connected with a market study commissioned with a view to acquiring shares, where that acquisition did not materialise?

Is it compatible with the deductibility rules laid down in the Sixth VAT Directive, specifically Articles 4(1) and (2) and 17(1), (2) and (5), to deduct tax borne by the appellant, Sonaecom SGPS, in respect of the payment to BCP of a commission for organising and putting together a bond loan, allegedly taken out with a view to integrating the financial structure of its affiliated companies, and which, since those investments failed to materialise, was ultimately transferred to Sonae, SGPS, the parent company of the group?

19Sonaecom, the Portuguese Republic and the European Commission submitted written observations on the request for a preliminary ruling and presented oral argument at the hearing on 12 February 2020.

V. Legal assessment

A. Deduction in respect of expenditure for the consultancy services (first question)

20By its first question, the referring court wishes to know whether the deduction made by Sonaecom is compatible with the Sixth Directive. It is thus ultimately asking whether the deduction declared by Sonaecom is consistent with EU law. It is nevertheless apparent from the request for a preliminary ruling that the referring court actually wishes to know whether Articles 17 and 4 of the Sixth Directive are to be interpreted as meaning that a holding company in a situation like Sonaecom’s is entitled to deduct VAT paid in respect of certain services.

21Furthermore, the referring court fails to recognise that, according to the Court’s settled case-law, the mere acquisition of shares by a holding company is not an economic activity within the meaning of VAT law. ⁵ It is otherwise only where a holding company is involved in the management of the acquired company. ⁶ The referring court did not find, however, that Sonaecom planned to supply taxable services to Cabovisão, in which it intended to acquire shares.

22Sonaecom has nevertheless submitted that it intended to supply taxable services to Cabovisão after the acquisition of the shares. The referring court can ascertain, subsequent to these proceedings, whether there is objective evidence of that intention.

23The first question referred must therefore be reformulated as asking whether a mixed holding company has the right to deduct under Articles 17 and 4 of the Sixth Directive in respect of consultancy services connected with the market survey with a view to the acquisition of shares. This question arises in particular because the holding company intended to supply taxable services to the company to be acquired, but this did not materialise in the absence of acquisition.

24The answer to this question can be inferred from the Court’s case-law. Alongside the question whether mixed holding companies can be taxable persons (1), the Court has reaffirmed in particular, most recently in Ryanair, ⁷ the deductibility of expenditure arising in preparation for activities not subsequently carried out by the taxable person (2). The Court has also considered the direct and immediate link between input and output transactions (3). A disproportion between the amount of the deduction and the amount of a holding company’s tax liability on the basis of its planned management services, which regularly occurs in these cases, is immaterial (4).

1. The mixed holding company as a taxable person

25Under Article 17(2) of the Sixth Directive, only a taxable person within the meaning of Article 4 has the right to deduct. The question whether and to what extent a holding company is a taxable person has been the subject of rulings by the Court on a number of occasions.

26More specifically, as regards a holding company’s right of deduction, the Court has held that a holding company does not have the status of taxable person within the meaning of Article 4 of the Sixth Directive (now Article 9 of the VAT Directive) and, accordingly, does not have the right to deduct tax under Article 17 of the Sixth Directive (now Articles 167 and 168 of the VAT Directive) when it has as its sole purpose the acquisition of shares in other undertakings and does not involve itself directly or indirectly in the management of those undertakings, without prejudice to its rights as a shareholder ⁸ (financial holding company).

27The mere acquisition and holding of shares in a company is not to be regarded as an economic activity, within the meaning of the VAT 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. ⁹

28It is otherwise, however, for management and investment holding companies. As the Court has held in settled case-law, they are taxable persons if the holding company is involved directly or indirectly in the management of the company in which the holding has been acquired. That is the case if, through such involvement, the holding company carries out transactions which are subject to VAT. ¹⁰ According to settled case-law, non-exhaustive examples ¹¹ are the supply by a holding company to its subsidiaries of administrative, accounting, financial, commercial, information technology and technical services. ¹²

29The same applies if the holding company carries out other economic activities, such as letting properties and buildings to third parties or its subsidiaries. ¹³ The direct, permanent and necessary extension of the existing taxable activity of a holding company also comes within the scope of VAT. ¹⁴

30This also applies to a mixed holding company. A mixed holding company is a company that, in addition to its non-economic holding activity, which consists in the holding of shares in other companies and is not subject to VAT, also carries out an economic activity. ¹⁵ According to case-law, a mixed holding company which not only holds shares in companies, but also supplies remunerated, taxable services to some of those companies, is thus a taxable person, ¹⁶ albeit entitled to only a pro rata deduction.

31Sonaecom, which intended to supply remunerated technical and management services to the company in which it wished to acquire shares, is such a mixed holding company and thus, in principle, a taxable person within the meaning of Article 4 of the Sixth Directive (now Article 9 of the VAT Directive).

2. The right to deduct based on the intended economic activities

32Sonaecom’s right to deduct in respect of the consultancy services arose, in principle, even though it ultimately did not acquire any shares in Cabovisão.

33According to the Court’s case-law, a right to deduct also exists for abortive investments. In the case of costs incurred in the preparation of an economic activity, deduction of input tax can be claimed even where the economic activity is not taken up successfully and the intended taxable transactions do not take place. ¹⁷ This follows from the neutrality of the VAT system, whereby an undertaking’s preparatory activities are intended to be exempt from any VAT burden.

34The Court has thus ruled in Ryanair that a company which plans to acquire shares of another company and carries out preparatory acts with the intention of becoming involved in the management of that other company by providing management services subject to VAT must be considered a taxable person within the meaning of the Sixth Directive. ¹⁸

35In the present case, this applies in principle to Sonaecom, which intended to supply taxable services to Cabovisão, the company to be acquired.

3. The direct and immediate link between the consultancy services and the planned services

36The only question arising is thus the direct and immediate link between the expenditure incurred for the consultancy services in connection with the planned acquisition of shares and the services which Sonaecom intended to supply to Cabovisão.

37According to the Court’s settled case-law, expenditure has a direct and immediate link with certain output transactions which were a component of their cost. ¹⁹ In addition, an undertaking may claim deduction of input tax for the general costs which are components of the price of all its products. ²⁰

38Therefore, a company which intends to acquire all the shares of another company in order to provide management services subject to VAT to that other company has the right to deduct, in full, input VAT paid on expenditure relating to consultancy services provided in the context of a takeover bid. ²¹

39This can be applied to mixed holding companies. It is the situation at least in so far as a holding company bears expenditure connected with the acquisition of shares in subsidiaries to which it supplies or intends to supply taxable services. On that basis, it carries out an economic activity ²² and is entitled to deduct.

40In the present case, Sonaecom used consultancy services in order to acquire shares in Cabovisão and then to supply taxable services to that company. That expenditure has a direct and immediate link with the planned taxable services. In that regard, Sonaecom is entitled, in principle, to make a deduction in full.

4. The scope of the right to deduct

41Even though the referring court did not state how high the value of the planned taxable services would have been, it must be assumed that the VAT arising from those activities is much lower than the deduction claimed.

42In the present case, there was a deduction of approximately EUR 210000, together with a further amount of approximately EUR 770000 from the organisation of the issue of the bond loan. This disproportion between the scope of the deduction and the company’s own tax liability is inherent in most cases involving holding companies. This is somewhat concerning at first sight and raises the question whether the scope of the deduction should be limited in such cases.

43On closer inspection, however, that concern is dispelled. First, the disproportion occurs only on the basis of a selective approach which does not take account of the fact that the taxable services are supplied over a number of years. Second, VAT law does not prescribe a mandatory connection between the amount of the deduction and the amount of the tax liability. ²³

44A flat-rate reduction of the deduction based on non-taxable activities as a holding company is also ruled out if the costs of the inputs can be allocated directly to particular taxable outputs. Nor can the judgment in Larentia + Minerva and Marenave Schiffahrt ²⁴ be invoked in support of a pro rata reduction. It is true that a pro rata input tax deduction was considered in that case. However, this applied only if the expenditure on which input tax was charged could also be allocated to other subsidiaries in the taxable management of which the holding company was not involved. That is not the case here.

45Furthermore, such a disproportion is, in the final analysis, a consequence of the Court’s case-law according to which holding companies have a right to deduct only where they provide remunerated services to their affiliated companies (see point 26 et seq.). If controlling holding companies, which are economically active through the affiliated companies controlled by them, had been recognised in principle as having the right to deduct from their expenditure as a holding company, they would not be reliant on having recourse to seemingly artificial constructions of taxable services ²⁵ in order to prevent a definitive VAT burden within the group.

46Rather, the principle of neutrality of legal form, which has also been affirmed by the Court in VAT law, ²⁶ militates in favour of a full deduction by a controlling holding company. It is perfectly true that holding a share does not make a shareholder an economically active taxable person (see above, point 27). It is another question, which the Court has never expressly answered in the negative, whether a fully controlling shareholder is economically active through ‘its’ controlled company to the same extent as a single trader and should, like a single trader, thus be relieved of the VAT based on that activity.

47The principle of neutrality of legal form suggests that in both cases expenditure for the management of the undertaking should be relieved of VAT where the undertaking itself carries out transactions giving entitlement to deduction. The single trader is economically active directly and the controlling shareholder indirectly, through the controlled company. Neither (the single trader nor the controlling shareholder) should therefore be compelled to conclude service contracts for consideration with ‘its’ undertaking in order to be regarded as a taxable person.

5. Conclusion

48Consequently, a mixed holding company like Sonaecom has the right to full deduction pursuant to Articles 17 and 4 of the Sixth Directive in respect of expenditure for the acquisition of shares in a company to which it intended to supply taxable services. It is for the referring court to determine whether that is the case. The right to deduct also arises if that acquisition ultimately did not materialise and applies irrespective of the amount of VAT payable in respect of the planned services.

B. Deduction in respect of expenditure for the issue of bonds (second question)

49The second question should also be reformulated. ²⁷ In essence, the referring court wishes to know whether a mixed holding company has the right to deduct under Articles 17 and 4 of the Sixth Directive in respect of expenditure for organising and putting together a bond loan with a view to the acquisition of shares in an undertaking to which the holding company intended to supply remunerated services. The referring court asks in particular about the effects if the acquisition of the shares did not materialise and the holding company instead made available the capital obtained to the parent company of the group as an exempt loan.

50For this purpose, it must be examined whether the planned taxable use of the capital raised or the exempt use which actually took place determines the deduction by Sonaecom (see under 1). Consideration will then be given to the question raised by Sonaecom whether the ‘use’ of the capital for the benefit of operational companies, which took place subsequently in another tax period, has any effects (see under 2).

1. Determination of the deduction based on the actual use

51The scope of the right to deduct is regulated in Article 17(2)(a) of the Sixth Directive (now Article 168 of the VAT Directive). Under that provision, the taxable person is entitled to deduct in so far as the goods and services are used for the purposes of his or her taxable transactions.

52In the present case, Sonaecom had planned to utilise the capital raised through the issue of the bonds for the acquisition of shares in Cabovisão. The expenditure for the issue of the bonds thus has a direct and immediate link with the acquisition of the shares. As has already been stated above, ²⁸ it is immaterial that the planned transactions did not materialise.

53If the taxable person now actually carries out exempt activities in the same tax period, rather than the originally planned taxable activity, the question is raised whether this affects the deduction which has already arisen. Ultimately, this is a question of the relationship between the planned activity and the activity actually carried out in respect of the deduction. In my view, the actual use must be decisive where an input transaction can be allocated to a particular actual output transaction.

54This follows, first, from Article 17(2) of the Sixth Directive (now Article 168 of the VAT Directive). Under that provision, the taxable person is entitled to deduct only in so far as the goods and services are used for his or her taxable transactions. The right to deduct is thus based on a transaction-related perspective where the actual use is decisive.

55Furthermore, the Court has ruled with regard to input tax allocation for mixed-use goods that Member States may provide for calculation methods different from the turnover-based allocation key provided for in the Sixth Directive and the VAT Directive if the method chosen guarantees a more precise result. ²⁹ The allocation based on the actual use is the most precise way of determining the deduction accurately and therefore takes precedence over having regard solely to the intended — and thus still uncertain — use by the taxable person. In addition, the rules on the adjustment of deductions (Article 20 of the Sixth Directive and now Articles 184 and 185 of the VAT Directive) show that the initial deduction is ultimately adjusted as precisely as possible to the actual use ‘to ensure that the taxable person neither benefits nor is prejudiced unjustifiably’ (see Article 20(6) of the Sixth Directive and Article 192 of the VAT Directive).

56Lastly, the assessment of Article 17 of the Sixth Directive (now Articles 168 and 169 of the VAT Directive) and the principle of neutrality also indicate that regard should be had primarily to the actual use, where it exists. Under Article 17(2) and (3) of the Sixth Directive and Articles 168 and 169 of the VAT Directive, in making the deduction the taxable person is intended to be relieved only of VAT which has a link with (generally ³⁰) taxable output transactions. A right to deduct does not, however, exist in principle where there is a direct and immediate link with an exempt activity. ³¹

57In the present case, Sonaecom granted a loan to the parent company of the group. The granting of credit is exempt from VAT under Article 13(B)(d)(1) of the Sixth Directive. A deduction pursuant to Article 17 of the Sixth Directive (now Article 167 et seq. of the VAT Directive) is therefore precluded.

58Furthermore, the principle of fiscal neutrality precludes economic operators actually carrying on the same activities from being treated differently as far as the levying of VAT is concerned ³² in order to avoid distortions of competition. If, however, the two taxable persons ultimately carry out only exempt transactions in the same tax period, neither has a right to deduct. A right to deduct existing solely on the basis of one’s undertaking’s former intention to carry out taxable transactions would afford it a competitive advantage. In addition to the problem of an adequate review of that intention, such an outcome would also run counter to the approach taken by the Court, according to which regard should be had, in assessing a transaction to be taxed, to the objective character of the transaction and not to subjective intentions. ³³

59The precedence of the actual use over the planned use is not precluded by the judgments in Sveda and Iberdrola. ³⁴ Those judgments permitted the deduction in very generous terms even though the expenditure in each case was closely linked to services supplied free of charge in support of municipal infrastructure (recreational path to promote tourism and reconstruction of a pump station to connect buildings to be constructed).

60In these circumstances, the Court did not rule on the precedence of the actual exempt use over the planned taxable use. The decisions concerned only the link between input transactions and the taxable person’s economic activity as a whole which would not have been possible without the service supplied free of charge. ³⁵ There are no such circumstances here, however.

61Consequently, the actual use within the tax period in which the right to deduct arose has precedence over the original intention.

62It is clear in the present case that Sonaecom did not utilise the capital raised through the issue of the bonds for the originally planned acquisition. Instead, in the relevant year, 2005, Sonaecom transferred that capital to the parent company of the group as an exempt loan. This point is also emphasised by Portugal.

63Sonaecom is incorrect in its assertion that the expenditure for the issue of its bonds is deductible as general costs of the undertaking. Sonaecom claims in this regard that the intended purpose of the issue of the bonds was to continue the group’s economic activities. It merely ‘parked’ the capital obtained through the issue of the bonds with the parent company of the group. The capital was subsequently returned to Sonaecom so that it was able to purchase shares in other undertakings.

64However, the taxable person’s general costs can be used only in the absence of a direct and immediate link between a particular input transaction and output transactions giving entitlement to deduct. ³⁶ It is only where an input transaction cannot be allocated to an output transaction that the link between an input transaction and an undertaking’s overall economic activity should be examined as a secondary point. ³⁷ In the present case, however, there is a direct and immediate link with the granting of the exempt loan giving entitlement to deduct.

65In conclusion, the actual exempt transfer of the capital raised from a mixed holding company to the parent company of the group thus precludes a deduction under Article 17 of the Sixth Directive (now Articles 168 and 169 of the VAT Directive) in respect of capital procurement costs. The direct link with the exempt loan actually provided takes precedence over the original intention to supply taxable services to a subsidiary to be acquired with that capital.

2. Subsequent actual use of the capital

66Sonaecom maintains that it merely ‘parked’ the capital with the parent company of the group and utilised it in a subsequent tax period for shares, as originally intended. If, subsequently, Sonaecom actually used the capital obtained for taxable services, consideration might have to be given to an adjustment of the deduction pursuant to Article 20 of the Sixth Directive (now Article 184 et seq. of the VAT Directive).

67However, this does not affect the deduction in the relevant tax period at issue. Possible effects would become apparent only in the tax period of the change in use.

68In addition, Article 20 of the Sixth Directive (now Article 184 et seq. of the VAT Directive) provides for the initial deduction to be adjusted only under certain conditions. That is the case inter alia where that deduction was lower than that to which the taxable person was entitled. The aim, having regard to the principle of neutrality, is for the taxable person to be relieved in full of input tax charged on long-lived assets. ³⁸ The Sixth Directive and the VAT Directive employ the notion of ‘capital goods’ to this effect.

69It nevertheless seems doubtful whether services for the issue of bonds are to be regarded as capital goods within the meaning of Article 20(2) of the Sixth Directive (now Article 187 of the VAT Directive). According to the Court’s case-law, ‘capital goods’ covers goods used for the purposes of some business activity and distinguishable by their durable nature and their value and such that the acquisition costs are not normally treated as current expenditure but are written off over several years. ³⁹ These should be distinguished from supplies consumed immediately, where it is not possible to adjust the deduction over time. That is generally the case with services.

70However, Sonaecom used services for the issue of bonds. Those services are consumed in full when the capital is obtained such that the change in use of the capital raised does not affect the deduction in respect of those services in subsequent years.

VI. Conclusion

Conclusion

71In the light of the foregoing considerations, I propose that the Court answer the questions referred for a preliminary ruling as follows:

Articles 17 and 4 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment are to be interpreted as meaning that a mixed holding company like Sonaecom has the right to full deduction in respect of expenditure for the acquisition of shares in a company to which it intended to supply taxable services. It is for the referring court to determine whether that is the case. The right to deduct also arises if that acquisition ultimately did not materialise and applies irrespective of the amount of VAT payable in respect of the planned services.

The actual exempt transfer of the capital raised from a mixed holding company to the parent company of the group precludes a deduction. The direct link with the exempt service actually provided takes precedence over the original intention to supply taxable services to a subsidiary to be acquired with that capital.

¹ Original language: German.

² See, inter alia, judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537); of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496); of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166); and of 6 September 2012, Portugal Telecom (C‑496/11, EU:C:2012:557).

³ Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), as amended by Council Directive 2004/66/EC of 26 April 2004 (OJ 2004 L 168, p. 35).

⁴ Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), as amended by Council Directive (EU) 2019/475 of 18 February 2019 (OJ 2019 L 83, p. 42).

⁵ Judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 30); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 16); and of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 28).

⁶ Judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 32); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 17); and of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 29).

⁷ Judgment of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834), and my Opinion in that case (EU:C:2018:301).

⁸ Judgments of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 27), and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 18).

⁹ Judgments of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 28), and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 19).

¹⁰ Judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 32); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 17); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 29); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 20).

¹¹ As is expressly held in the judgment of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 31).

¹² Judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 32); of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraphs 30 and 31); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 21).

¹³ See, with regard to the latter, judgment of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 32). It is rather doubtful, however, whether the letting of a property can and must really be understood as ‘involvement of a holding company in the management of its subsidiary’.

¹⁴ Judgments of 8 November 2018, C&D Foods Acquisition (C‑502/17, EU:C:2018:888, paragraph 33); of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 31); and of 29 April 2004, EDM (C‑77/01, EU:C:2004:243, paragraph 70).

¹⁵ My Opinion in Ryanair (C‑249/17, EU:C:2018:301, point 31 and footnote 21); Opinion of Advocate General Léger in EDM (C‑77/01, EU:C:2002:483, point 2 and footnote 3); and Opinion of Advocate General Stix-Hackl in Cibo Participations (C‑16/00, EU:C:2001:131, point 16).

¹⁶ Judgments of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166, paragraph 31); of 29 April 2004, EDM (C‑77/01, EU:C:2004:243, paragraph 80); and of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 22).

¹⁷ Judgments of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 18); of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 20); of 14 March 2013, Ablessio (C‑527/11, EU:C:2013:168, paragraph 25); of 29 February 1996, Inzo (C‑110/94, EU:C:1996:67, paragraph 17); and of 14 February 1985, Rompelman (268/83, EU:C:1985:74, paragraphs 23 and 24); see, also, my Opinion in Ryanair (C‑249/17, EU:C:2018:301, points 16 and 26).

¹⁸ Judgment of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 19 and operative part).

¹⁹ Judgments of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge (C‑316/18, EU:C:2019:559, paragraph 25); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 26); of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 28); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 23).

²⁰ Judgments of 3 July 2019, The Chancellor, Masters and Scholars of the University of Cambridge (C‑316/18, EU:C:2019:559, paragraph 26); of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 27); of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 29); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 24).

²¹ Judgment of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 32 and operative part).

²² Judgments of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 36); of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 25); and of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166, paragraph 28).

²³ See judgments of 17 October 2018, Ryanair (C‑249/17, EU:C:2018:834, paragraph 23); of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 17); of 14 March 2013, Ablessio (C‑527/11, EU:C:2013:168, paragraph 23); and of 14 February 1985, Rompelman (268/83, EU:C:1985:74, paragraph 19). The common system of VAT ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT.

²⁴ Judgment of 16 July 2015 (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 29).

²⁵ I have already referred to this problem in my Opinion in Ryanair (C‑249/17, EU:C:2018:301, point 28).

²⁶ See, inter alia, with regard to exemptions: judgments of 28 June 2007, JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies (C‑363/05, EU:C:2007:391, paragraph 26); of 4 May 2006, Abbey National (C‑169/04, EU:C:2006:289, paragraph 53); of 3 April 2003, Hoffmann (C‑144/00, EU:C:2003:192, paragraph 24); of 10 September 2002, Kügler (C‑141/00, EU:C:2002:473, paragraph 30); and of 7 September 1999, Gregg (C‑216/97, EU:C:1999:390, paragraph 20).

²⁷ See point 20 et seq. of this Opinion.

²⁸ Point 32 et seq. of this Opinion.

²⁹ Judgments of 9 June 2016, Wolfgang und Dr. Wilfried Rey Grundstücksgemeinschaft (C‑332/14, EU:C:2016:417, paragraph 33); and of 8 November 2012, BLC Baumarkt (C‑511/10, EU:C:2012:689, paragraph 23 et seq. and operative part), with regard to the allocation key based on floor area in German turnover tax law.

³⁰ Certain exceptions are, for example, regulated in Article 169 of the VAT Directive.

³¹ Judgments of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 30); of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 59); and of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166, paragraph 30); see, also, my Opinion in C&D Foods Acquisition (C‑502/17, EU:C:2018:676, point 37).

³² Judgments of 3 April 2003, Hoffmann (C‑144/00, EU:C:2003:192, paragraph 24); of 10 September 2002, Kügler (C‑141/00, EU:C:2002:473, paragraph 30); and of 7 September 1999, Gregg (C‑216/97, EU:C:1999:390, paragraph 20).

³³ Judgments of 27 September 2007, Teleos and Others (C‑409/04, EU:C:2007:548, paragraph 39); of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 42); of 12 January 2006, Optigen and Others (C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 44); and of 6 April 1995, BLP Group (C‑4/94, EU:C:1995:107, paragraph 24).

³⁴ Judgments of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraphs 33 and 34), and of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 22).

³⁵ Judgments of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 29), and of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 28); see, also, my Opinion in C&D Foods Acquisition (C‑502/17, EU:C:2018:676, point 49).

³⁶ Point 37 of this Opinion, and my Opinion in Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, point 35).

³⁷ My Opinions in C&D Foods Acquisition (C‑502/17, EU:C:2018:676, point 51), and Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, points 36 and 37).

³⁸ Judgment of 25 July 2018, Gmina Ryjewo (C‑140/17, EU:C:2018:595, paragraph 55), and my Opinion in that case (C‑140/17, EU:C:2018:273, point 40).

³⁹ Judgment of 16 February 2012, Eon Aset Menidjmunt (C‑118/11, EU:C:2012:97, paragraph 35 and the case-law cited).