C-502/17 C&D Foods Acquisition

JUDGMENT OF THE COURT (Sixth Chamber)

8 November 2018 ( *1 )

(Reference for a preliminary ruling — Common system of value added tax (VAT) — Proposed sale of shares in a sub-subsidiary — Expenditure associated with the provision of services acquired for the purposes of that sale — Sale not carried out — Request for a deduction of input tax — Scope of VAT)

In Case C‑502/17,

REQUEST for a preliminary ruling under Article 267 TFEU from the Vestre Landsret (High Court of Western Denmark), made by decision of 15 August 2017, received at the Court on 18 August 2017, in the proceedings

C&D Foods Acquisition ApS

v

Skatteministeriet,

THE COURT (Sixth Chamber),

composed of J.-C. Bonichot, President of the First Chamber, acting as President of the Sixth Chamber, A. Arabadjiev and C.G. Fernlund (Rapporteur), Judges,

Advocate General: J. Kokott,

Registrar: A. Calot Escobar,

having regard to the written procedure,

after considering the observations submitted on behalf of:

C&D Foods Acquisition ApS, by T. Frøbert and K. Bastian, advokater,

the Danish Government, by J. Nymann-Lindegren, acting as Agent, and by D. Auken, advokat,

the European Commission, by R. Lyal and N. Gossement, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 6 September 2018,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

2The request has been made in the context of proceedings between C&D Foods Acquisition ApS (‘C&D Foods’) and the Skatteministeriet (Ministry of Taxation, Denmark) concerning the latter’s refusal to grant to that company the deduction of input value added tax (VAT) relating to consultancy services which that company used in the context of a proposed sale, which was not completed, of shares in a sub-subsidiary to which C&D Foods provided management and IT services.

Legal context

EU law

3Article 2(1) of Directive 2006/112 provides:

‘The following shall be subject to VAT:

…

the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

…’

4Article 9(1) of that directive is worded as follows:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

5Under Article 168 of Directive 2006/112:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

The VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

…’

Danish law

6At the time of the facts of the case in the main proceedings, the relevant provisions of the Momsloven (Law on VAT) were set out in Consolidation Law No 966 of 14 October 2005, as amended (‘the Law on VAT’).

7Pursuant to Paragraph 3(1) of the Law on VAT:

‘A taxable person is any natural or legal person exercising an independent economic activity.’

8Paragraph 4(1) of that law provides:

‘“Supply of goods” shall mean the transfer of the right to dispose of tangible property as owner.’

9Paragraph 13(1).11 of the Law on VAT is worded as follows:

‘The following goods and services shall be exempt from VAT:

11. The following financial activities:

…

transactions, including negotiation but excluding management and safekeeping, relating to securities, excluding securities holdings and other securities conferring certain rights, in particular the right of use, to real property, as well as equities and shares the ownership of which confers, in fact or in law, property rights or rights of use of immovable property or of a share of immovable property.’

10Paragraph 37(1) of that law provides:

‘Undertakings registered pursuant to Paragraphs 47, 49, 51 or 51a may, when calculating the input tax (see Paragraph 56(3)), deduct the tax provided for by the present Law for purchases and other transactions carried out by the undertaking, relating to goods and services used exclusively for the purposes of the undertaking’s non-tax-exempt supplies on the basis of Paragraph 13, in particular supplies carried out abroad, subject, however, to Paragraph 6.’

11The referring court states that, following SKAT (Danish Tax Authority) practice, a parent holding company which is involved in the management of a subsidiary cannot deduct the VAT levied on consultancy fees incurred during the sale of securities representing the capital of that subsidiary, even in the case of the disposal of the entirety of those securities, since such a sale is tax-exempt pursuant to Paragraph 13(1).11(e) of the Law on VAT.

12In the case where the previous acquisition and ownership of the shares in the subsidiary constituted an economic activity, SKAT takes the view that the disposal by the holding company of the shares owned in the subsidiary constitutes a VAT-exempt transaction. Consequently, the input tax levied on the fees associated with that sale is not deductible.

13A right to deduct VAT levied on consultancy fees incurred in the context of the sale of shares in a subsidiary may, however, be granted if those fees are liable to be regarded as forming part of the general costs of the taxable person’s economic activity. For that purpose, the costs incurred are required to be capable of being considered as components of the cost of the transactions carried out in the context of the economic activity of that taxable person. By contrast, if those costs can be incorporated into the price of the shares transferred, no right to deduct VAT may be granted. According to SKAT, the right to a deduction depends on a specific assessment as to whether the costs incurred are liable to be incorporated into the price of the shares transferred or are exclusively part of the components of the cost of the transactions inherent to the taxable person’s economic activity as a whole.

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

14C&D Foods, a company established under Danish law, is part of the Arovit international group (‘the Arovit group’). It was the parent company of Arovit Holding A/S, also a Danish company, which owned Arovit Petfood, which, in turn, owned the other companies in the group.

15Prior to 1 March 2007, the main activity of C&D Foods was to act as the parent company of Arovit Holding. On that date, C&D Foods entered into a management agreement with its sub-subsidiary Arovit Petfood, relating to the supply of management and IT services. By virtue of that agreement, C&D Foods invoiced Arovit Petfood monthly for its services, on the basis of the amount of its fees plus a ‘mark-up’ of 10%, to which amount VAT was added.

16On 13 August 2008, Kaupthing Bank, an Icelandic credit institution, assumed ownership of the Arovit group for the sum of EUR 1, on account of the failure on the part of the former owner of that group to repay a loan which had been granted to it. Since Kaupthing Bank intended to sell all of the shares owned in Arovit Petfood, so as no longer to be the group’s creditor, it entered, over the period from December 2008 to March 2009, into a number of consultancy agreements, on behalf of C&D Foods, in the context of that proposed sale (‘the disputed services’).

17Having paid fees associated with that proposed sale, C&D Foods deducted the corresponding VAT over the course of 2009. The sale process was brought to an end during the autumn or towards the end of 2009, as no potential buyer had been found.

18By decision of 26 January 2012, SKAT refused the VAT deduction associated with the expenditure related to the disputed services. That decision was upheld by the Landsskatteretten (Danish Supreme Tax Authority) on the ground, inter alia, that that expenditure did not exhibit the necessary connection to C&D Foods’ VAT-taxable transactions.

19C&D Foods brought proceedings before the Retten i Esbjerg (Esbjerg District Court, Denmark), which referred the matter to the Vestre Landsret (High Court of Western Denmark) in view, according to the former court, of the questions of principle raised.

20The Vestre Landsret (High Court of Western Denmark) is unsure as to whether a holding company is entitled to deduct the VAT levied on fees associated with a sale, envisaged but not completed, of shares in a sub-subsidiary to which that holding company supplies management and IT services.

21It was in those circumstances that the Vestre Landsret (High Court of Western Denmark) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Should Article 168 of Directive 2006/112 be interpreted as meaning that a holding company, in circumstances such as those in the main proceedings, is entitled to a full deduction of VAT on input services related to due diligence investigations before an envisaged, but not completed, sale of shares in a subsidiary to which the holding company supplies management and IT services that are subject to VAT?

Is the answer to the above question affected by the fact that the price for the VAT-taxable management and IT services, which the holding company supplies for the purposes of its economic activity, is a fixed amount corresponding to the holding company’s expenditure on employees’ salaries, with the addition of a “mark-up” of 10%?

Irrespective of the answer to the foregoing questions, can a right of deduction exist if the consultancy costs at issue in the main proceedings are regarded as general costs, and if so, on what conditions?’

Consideration of the questions referred

22It should be noted, first of all, that, according to the referring court, the questions referred for a preliminary ruling relate only to the right to deduct the VAT relating to the expenditure associated with the disputed services in circumstances such as those at issue in the main proceedings, and not to the question as to who properly bore that expenditure.

23In that connection, it must be recalled, as the Advocate General notes in point 16 of her Opinion, that, in accordance with Article 168 of Directive 2006/112, the right to deduct input tax presupposes that the taxable person is the recipient of the supplies or services at issue.

24In the case in the main proceedings, it is apparent from the information before the Court that Kaupthing Bank sought, on behalf of C&D Foods, consultancy services in order to prepare for the disposal of its shares in Arovit Petfood. The proceeds of that proposed sale were intended to allow Kaupthing Bank to cease to be a creditor of the Arovit group.

25Inasmuch as it is apparent from the order for reference that C&D Foods was the recipient of at least some of the disputed services and that, furthermore, the referring court has explained why it deemed it necessary to seek an answer to the questions referred for a preliminary ruling, it appears that those questions are not hypothetical.

26Secondly, in order to answer the questions referred, it is necessary to establish beforehand whether a share disposal transaction, such as that at issue in the main proceedings, constitutes an economic activity coming within the scope of Directive 2006/112.

27Accordingly, it is necessary to take the view that, by those questions, which it is appropriate to examine together, the referring court is asking, in essence, whether Articles 2, 9 and 168 of Directive 2006/112 must be interpreted as meaning that a share disposal transaction, envisaged but not completed, such as that at issue in the main proceedings, comes within the scope of Directive 2006/112 and, if that is the case, for a determination as to whether those provisions grant the right to a company to deduct the input VAT related to expenditure incurred in the context of a transaction for the disposal of shares in a sub-subsidiary to which that company provides VAT-taxable management services, when it is envisaged that the proceeds of that sale will be allocated to the repayment of a debt due and, where applicable, the extent of that deduction.

28As a preliminary point, it must be stated that Directive 2006/112, which entered into force on 1 January 2007, repealed 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), without introducing any substantive amendments vis-à-vis that directive. Since the relevant provisions of Directive 2006/112 are identical in their substantive scope to those of Sixth Directive 77/388, the case-law of the Court relating to that latter directive is also applicable to Directive 2006/112.

29It follows from Article 2(1) of Directive 2006/112, which defines the scope of VAT, that, within the territory of a Member State, activities of an economic nature alone are subject to that tax. Pursuant to Article 9 of that directive, a taxable person is understood to mean any person who independently carries out in any place any economic activity, whatever the purpose or result of that activity. Furthermore, it is clear from Article 9 that the concept of economic activity encompasses any activity of producers, traders or persons supplying services and, more particularly, the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis (see, to that effect, judgment of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 27).

30It follows from the Court’s case-law that a company which has as its sole purpose the acquisition of holdings in other companies, without it becoming directly or indirectly involved in the management of those companies, is neither a taxable person, within the meaning of Article 9 of Directive 2006/112, nor a person entitled to deduct VAT, within the meaning of Article 168 of that directive. The mere acquisition and ownership of shares do not, in themselves, constitute an economic activity for the purposes of Directive 2006/112, conferring on the holder the status of a taxable person, since those transactions do not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis, as the sole return on those transactions is a possible profit on the sale of those shares (see, to that effect, judgments of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 28 and the case-law cited, and of 17 October 2018, Ryanair, C‑249/17, EU:C:2018:834, paragraph 16).

31In that connection, the Court has stated that only payments which are the consideration for a transaction or an economic activity come within the scope of VAT and that such is not the case with regard to payments which arise simply from ownership of the asset, as in the case of dividends or other yields from a shareholding (judgment of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 29 and the case-law cited).

32However, the position is otherwise where a financial holding in another company is accompanied by direct or indirect involvement in the management of the company in which the holding has been acquired, without prejudice to the rights held by the holding company as shareholder or associate, in so far as involvement of that kind entails carrying out transactions which are subject to VAT by virtue of Article 2 of Directive 2006/112, such as the supply of administrative, accounting and information-technology services (see, to that effect, judgment of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 30 and the case-law cited).

33It is, furthermore, clear from the Court’s case-law that transactions relating to shares or holdings in a company are subject to VAT when they are carried out 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, or where they constitute the direct, permanent and necessary extension of the taxable activity (judgment of 29 October 2009, SKF, C‑29/08, EU:C:2009:665, paragraph 31 and the case-law cited).

34So far as concerns the question of whether the expenditure associated with a share transfer transaction comes within the scope of VAT, it should be recalled that, in its judgment of 29 October 2009, SKF (C‑29/08, EU:C:2009:665), the Court was called upon to examine that question concerning expenditure incurred by a parent company in the context of a transaction for the sale of shares in a subsidiary and a controlled company to which the former company, as the parent company, supplied services subject to VAT.

35The Court noted, in paragraph 33 of the judgment of 29 October 2009, SKF (C‑29/08, EU:C:2009:665), that, in such a context, a disposal, carried out in order to enable the parent company to restructure a group of companies, could be regarded as a transaction that consisted in obtaining income on a continuing basis from activities which went beyond the compass of the simple sale of shares. Accordingly, the Court found that that transaction had a direct link with the organisation of the activity carried out by the group and accordingly constituted the direct, permanent and necessary extension of the taxable activity of the taxable person and consequently came within the scope of VAT.

36The Court has, furthermore, held that it is in the light of their objective content that it is necessary to determine whether there is a direct and immediate link between the supply of goods or services utilised and a taxable output transaction or, exceptionally, a taxable input transaction (judgment of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 24 and the case-law cited).

37In that context, the Court stated that the exclusive reason for the transaction at issue should also be taken into account, since that reason must be regarded as a criterion for determining the objective content. Where it is clear that a transaction has not been performed for the purposes of the taxable activities of a taxable person, that transaction cannot be regarded as having a direct and immediate link with those activities within the meaning of the Court’s case-law, even if that transaction would, in the light of its objective content, be subject to VAT (judgment of 21 February 2013, Becker, C‑104/12, EU:C:2013:99, paragraph 29).

38It follows that, in order for a share disposal transaction to be able to come within the scope of VAT, the direct and exclusive reason for that transaction must, in principle, be the taxable economic activity of the parent company in question, or that transaction must constitute the direct, permanent and necessary extension of that activity. That is the case where that transaction is carried out with a view to allocating the proceeds of that sale directly to the taxable economic activity of the parent company in question or to the economic activity carried out by the group of which it is the parent company.

39In the present case, it is apparent from the file before the Court that the objective of the disposal of shares at issue in the main proceedings was to use the proceeds of that sale to settle the debts owed to Kaupthing Bank, the new proprietor of the Arovit group. As stated in the preceding paragraph of this judgment, such a sale cannot be deemed to be either a transaction for which the direct and exclusive reason is the taxable economic activity of C&D Foods, or a transaction constituting the direct, permanent and necessary extension of the taxable economic activity of that company. In those circumstances, that sale does not constitute a transaction consisting in obtaining income on a continuing basis from activities which go beyond the compass of the simple sale of shares and, accordingly, it does not come within the scope of VAT. It follows that the VAT relating to the disputed services is not deductible.

40That finding cannot be called into question by the mere fact that any disposal of shares in Arovit Petfood would have resulted, for the latter company, in the cessation of the management and IT services provided to it by C&D Foods. It is apparent from the file before the Court that Kaupthing Bank had, in any event, intended to sell its shares in Arovit Petfood. It thus appears that the expenditure associated with the disputed services would have been incurred nonetheless, even if C&D Foods had not provided any management and IT services to Arovit Petfood. Thus, the direct and exclusive reason for any cessation of the supply of services at issue in the main proceedings cannot be found in the economic activity of C&D Foods.

41Lastly, it should also be clarified that that finding also cannot be called into question by the fact that the intended sale was not completed. In that context, the important point is the fact that, had that sale been completed, the expenditure incurred in relation to the disputed services would not, in any event, have come within the scope of VAT and, therefore, could not have given rise to a right to deduct.

42In the light of all of the foregoing considerations, the answer to the questions referred for a preliminary ruling is that Articles 2, 9 and 168 of Directive 2006/112 must be interpreted as meaning that a share disposal transaction, envisaged but not carried out, such as that at issue in the main proceedings, for which the direct and exclusive reason does not lie in the taxable economic activity of the company concerned, or which does not constitute the direct, permanent and necessary extension of that economic activity, does not come within the scope of VAT.

Costs

43Since 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 (Sixth Chamber) hereby rules:

Articles 2, 9 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a share disposal transaction, envisaged but not carried out, such as that at issue in the main proceedings, for which the direct and exclusive reason does not lie in the taxable economic activity of the company concerned, or which does not constitute the direct, permanent and necessary extension of that economic activity, does not come within the scope of value added tax.

Signatures

[Signatures]

( *1 ) Language of the case: Danish.

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 6 September 2018 ¹

(Preliminary ruling — Common system of value added tax — Holding company — Deduction of input tax — Expenditure on services linked to the proposed sale of shares in a subsidiary)

I. Introduction

1The Court of Justice has already dealt in a number of cases with the right of a holding company to deduct input tax linked to the acquisition of company shares. ² The present case is concerned with the mirror-image situation of the disposal of company shares by a holding company, which has not, however, been as frequently considered up to now. ³

2These proceedings will therefore provide the Court with the opportunity to clarify its case-law on the right of holding companies to deduct input tax. In particular, it will also involve concretising the conditions under which a direct and immediate link with a specific output transaction, which is necessary for the deduction of input tax, can be assumed to exist.

II. Legal framework

3The EU legal framework of the case is governed by provisions of Directive 2006/112/EC (‘the VAT Directive’). ⁴

4Article 9(1) of the VAT Directive states:

‘“Taxable person” shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as “economic activity”. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.’

5Article 135 of the VAT Directive provides, inter alia, as follows:

‘Member States shall exempt the following transactions:

…

transactions, including negotiation but not management or safekeeping, in shares, interests in companies or associations, debentures and other securities, but excluding documents establishing title to goods, and the rights or securities referred to in Article 15(2); ...’

6Under Article 167 of the VAT Directive, a right of deduction is to arise at the time the deductible tax becomes chargeable. Under Article 168 of the Directive:

‘In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:

the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person; …’

7At national-law level, reference should be made to Lovbekendtgørelse nr. 966 of 14 October 2005 (Law on value added tax), applicable ratione temporis.

III. Facts and main proceedings

8The Danish company C&D Foods belongs to the international Arovit group. During the period to which the main proceedings relate, C&D Foods held 100 % of the shares in Arovit Holding, which, in turn, held all of the shares in Arovit Petfood. Thirteen further companies in various European countries, whose shares are held by Arovit Petfood, belong to the group.

9As of 2007 C&D Foods had an administrative arrangement to provide its sub-subsidiary Arovit Petfood with various administrative and IT services which were subject to VAT, such as accounting, controlling and budgeting services. In return, it received from Arovit Petfood an amount corresponding to the wage costs incurred plus a mark-up of 10 % and Danish VAT at the rate of 25 %. With regard to the other group companies, C&D Foods’ role was limited to holding the shares of those companies.

10In 2009, the Icelandic financial institution Kaupthing Bank acquired the Arovit group, which had encountered financial difficulties. Kaupthing Bank, through various auditing firms and the law firm Holst Advokater, investigated the possibilities of restructuring the Arovit group. To that end, it entered into consultancy contracts with the auditors concerned, whose fees plus VAT were paid by C&D Foods.

11In the course of this examination, Holst Advokater also drafted at least one contract for C&D Foods, which involved the sale of C&D Foods’ shares in Arovit Holding and Arovit Petfood to an as yet unnamed purchaser. For this consultancy service, Holst Advokater invoiced C&D Foods the corresponding fee plus VAT. The efforts to bring about a sale were abandoned in the autumn of 2009, however, as no purchaser could be found.

12C&D Foods deducted the input tax in respect of the VAT paid to Holst Advokater and the auditing companies on settlement of the fees. Both the SKAT (Danish Customs and Tax Administration) and, following an appeal, the Landsskatteret (Danish Supreme Tax Authority) denied C&D Foods the input tax deduction, however. As justification, they stated, respectively, that the consultancy services had not been provided to C&D Foods and that the expenditure did not exhibit the necessary relation to C&D Foods’ VAT-taxable output transactions.

13C&D Foods brought proceedings against those decisions which, given their fundamental importance, are pending before the Vestre Landsret (High Court of Western Denmark) as the court of first instance. By order of 15 August 2017, received at the Court of Justice on 18 August 2017, the Vestre Landsret (High Court of Western Denmark) stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling pursuant to Article 267 TFEU:

Should Article 168 of Directive 2006/112/EC be interpreted as meaning that a holding company, in circumstances such as those in the main proceedings, is entitled to a full deduction of VAT on input services related to due diligence investigations before an envisaged, but not completed, sale of shares in a subsidiary to which the holding company supplies management and IT services that are subject to VAT?

Is the answer to the above question affected by the fact that the price for the VAT taxable management and IT services, which the holding company supplies for the purposes of its economic activity, is a fixed amount corresponding to the holding company’s expenditure on employees’ salaries, with the addition of a ‘mark-up’ of 10 %?

Irrespective of the answer to the foregoing questions, can a right of deduction exist if the consultancy costs at issue in the main proceedings are regarded as general costs, and if so, on what conditions?’

14Denmark and the Commission submitted observations in the written procedure before the Court.

IV. Legal analysis

15By its three questions, the referring court ultimately wishes to know whether a holding company carrying out an economic activity has a right to deduct input tax in respect of incurred expenditure linked to the proposed disposal of shares. The economic activity of the holding company is precisely to provide management services to the sub-subsidiary ⁵ whose shares are to be sold along with the shares of the subsidiary.

A. The admissibility of the questions referred for a preliminary ruling.

16The right to deduct input tax under Article 168 of the VAT Directive exists so long as a taxable person is using supplies or services for the purposes of his taxable transactions. This presupposes that the taxable person is the recipient of the corresponding supplies or services. ⁶ Consequently, any right of C&D Foods to deduct input tax can arise only in respect of the VAT paid in connection with consultancy services of which it itself was the recipient. Conversely, a deduction of input tax by C&D Foods for the services subject to VAT of which Kaupthing Bank was the recipient is not permissible.

17The referring court points out, it is true, that its request for a preliminary ruling does not concern the question as to who was the correct bearer of the consultancy expenditure that was subject to VAT. Against this, however, it must be noted that the Court of Justice has no jurisdiction to answer hypothetical questions. ⁷ The following statements therefore relate only to the deduction of input tax in respect of the VAT paid to Holst Advokater as only in this instance does the order for reference show clearly that C&D Foods was the recipient of the consultancy services.

B. Answer to the questions referred

18The first question referred by the national court relates in general to C&D Foods’ right to deduct input tax in respect of the consultancy services subject to VAT of Holst Advokater in connection with the proposed sale of the shares in Arovit Petfood.

19The second and third questions relate, in particular, to the ‘direct and immediate link’ between the expenses at issue and the actual or proposed output transactions, that is, the transactions arising from the administrative agreement with Arovit Petfood or the proposed sale of shares.

20As the link with the economic activity is a precondition for the right to deduct input tax mentioned in the first question referred, the three questions referred for a preliminary ruling must be answered together.

21The referring court’s doubts as to C&D Foods’ entitlement to deduct input tax rest essentially on two considerations:

22One raises the question of whether the proposed sale of the shares can be regarded as an economic activity at all and thus whether it comes within the scope of VAT (see point 1). The second question is whether and, if so, under what circumstances the direct and immediate link between input transactions and an activity subject to VAT can be affirmed. This is because there is also no right to deduct input tax if the input transactions are directly and immediately linked to a tax-exempt transaction (see point 2).

23As an alternative, I will finally also investigate the circumstances under which a link with the overall economic activity of C&D Foods might be affirmed (see point 3).

1. The sale of the shares in Arovit Petfood as an economic activity

24According to the established case-law of the Court of Justice, the mere acquisition and holding of shares in a company does not constitute an economic activity within the meaning of Article 9(1) of the VAT Directive. ⁸ The position is different, however, where the acquisition or holding of company shares is for the purpose of being involved directly or indirectly in the management of the company. ⁹ According to the case-law, administrative, financial or commercial services (so-called management services) are considered to be typical types of involvement in the management of a company. ¹⁰

25The provision of management services in a situation such as that in the main proceedings, where a so-called intermediate holding company is still active, is also regarded as an economic activity within the meaning of the VAT Directive. The crucial factor for the classification as an economic activity is the carrying out by C&D Foods of transactions which are subject to VAT. This is shown clearly by the recent judgment of the Court in the Marle Participations case. ¹¹

26According to the case-law of the Court, the principles set out above should also extend to cases involving the disposal of shareholdings through which the taxable involvement in the management of the subsidiary is terminated. ¹²

27The sale of company shares does not, admittedly, in itself constitute an economic activity. According to the case-law, however, the termination and the commencement of an economic activity must be treated equally for reasons of tax neutrality. ¹³ Just as the acquisition of shares may under certain conditions be a preparatory act for the carrying out of an economic activity which comes within the scope of VAT, the same must also apply in regard to the disposal of shares by which an economic activity is ended. Otherwise, an arbitrary distinction would be made between the two scenarios. ¹⁴ This consideration was also emphasised by the Commission in its written observations.

28With regard, in particular, to the disposal of company shares, in the SKF case the Court affirmed as being an economic activity of a holding company the disposal of all the shares which that company held in a subsidiary which terminated its participation in that subsidiary. ¹⁵ This also ended the economic activity of providing management services to the subsidiary which had previously taken place. ¹⁶

29A similar situation is also at issue in the main proceedings in the present case. By selling the shares in Arovit Holding along with the shares in Arovit Petfood, C&D Foods in fact intended to terminate its economic activity of providing management services to Arovit Petfood which are subject to VAT.

30This conclusion is also not called into question by the fact that the proceeds from the sale of the shares were to be used to settle debts owed to the new group owner, Kaupthing Bank, whereas in the SKF case a restructuring of the group was to take place. In contrast to the SKF case, in the main proceedings here no future taxable transactions were planned. This is inconsequential, however, for the following three reasons.

31First, the Court has made clear that the right to deduct input tax exists even where the taxable person, having made use of the services in question, no longer carries out any transactions because he ultimately has terminated his economic activity. ¹⁷ Consequently, the situation can be no different where a taxable person uses the consideration for the transactions leading to the termination of his economic activity in order to repay debts.

32Secondly, the term ‘economic activity’, like other terms defining taxable transactions under the VAT Directive, must be construed objectively, ¹⁸ and consequently the ultimate purpose pursued by a taxable person in respect of an expense is irrelevant. ¹⁹ The financial motivation of the taxable person in respect of the action taken cannot therefore be a decisive factor.

33Thirdly, it also cannot be inferred from the judgment in the BLP Group case that transactions which are used to repay debts should in general be excluded from the right to deduct input tax.

34In that latter case, a holding company disposed of shares in a subsidiary with which it did not carry out any taxable transactions. BLP Group argued that the fact that it would use the proceeds from the sale of the shares to repay debts and thereby indirectly strengthen its remaining economic activities constituted a link with its other taxed activities. The Court did not accept that argument, however. Ultimately, it declined to allow the deduction of input tax not because the proceeds were used to repay debts but because there was no direct and immediate link with an activity subject to VAT. ²⁰

35It follows from all of the foregoing that the proposed sale of shares in circumstances such as those in the main proceedings, namely for the purpose of terminating a taxable activity, is to be regarded as an economic activity and, consequently, comes within the scope of VAT.

2. Direct and immediate link with a taxed activity?

36However, the deduction of input tax can be claimed only for expenses which are directly and immediately linked ²¹ to a taxed output transaction. According to the Court’s case-law, such expenses are directly and immediately linked to certain output transactions where they are a component of the cost of those output transactions. ²² In addition, it is possible to claim a deduction of input tax for the undertaking’s general costs which are components of the price of an undertaking’s products. ²³

37On the other hand, as a rule ²⁴ a right to deduct input tax does not exist if there is a direct and immediate link with a tax-exempt activity. ²⁵

38However, pursuant to Article 135(1)(f) of the VAT Directive ‘transactions … in shares, interests in companies or associations, debentures and other securities’ must be exempted from VAT by the Member States. This provision has been transposed into national law by Article 13(1)(11) of the Danish Law on value added tax.

39According to the case-law of the Court, this provision of EU law covers transactions which are capable of creating, altering or extinguishing rights and obligations of parties to securities, but excludes the mere (selective) acquisition and sale of securities, which does not constitute an economic activity. ²⁶ As set out above, this is the case in respect of the proposed sale of the shares in Arovit Petfood in the main proceedings. ²⁷

40Consequently, under Article 135(1)(f) of the VAT Directive, the proposed transaction would have been exempt from VAT.

41It is therefore necessary to examine whether the consultancy services at issue have a direct and immediate link to the proposed tax-exempt transaction.

42It is not possible in every case for a specific output transaction to be distinguished from the other transactions which constitute the total economic activity of a taxable person. If this is the case, however, the direct and immediate link with this specific transaction must be examined first. ²⁸ Only then is it to be ascertained whether the expenditure in question, as a cost component of all the services, has a direct and immediate link to the overall economic activity (so-called general costs).

43In respect of the disposal of shares, the Court considers relevant, for the purpose of determining a direct and immediate link between an input service and this transaction, whether the expenditure incurred is incorporated into the price of the holding or the shares. ²⁹

44Against this background, the referring court appears to be of the opinion that there can be no direct and immediate link with the proposed sale of the shares because the consultancy costs could not have affected the price of the shares. For that reason, in its second and third questions it asks directly about the circumstances in which the expenditure on the consultancy services can be validly claimed as general costs.

45It should be noted, however, that the wording of the Court, according to which the expenditure incurred must be included in the price of the holding or the shares, does not mean that an actual increase in the price is necessary or, for example, that a specific sum would have to be imposed onto the selling price.

46This is particularly clear in terms of the example of listed public limited companies: the share price is usually determined on the basis of the current share price index and not through negotiation between seller and buyer. Therefore, the Court’s formulation should be construed as meaning that the expenditure must have an immediate negative impact on the profit from a specific transaction involving a holding or shares and not solely on the overall profit of the company. The input transactions must therefore be so closely linked to the sale of the shares that, in financial terms, they represent directly a component of the cost of the intended transaction.

47Moreover, — in contrast to what was assumed by C&D Foods — the assumption of a link with the tax-exempt sale of shares is not precluded simply because the sale did not ultimately materialise. In such cases the recognition of preparatory acts as an economic activity also depends, in the context of the deduction of input tax, on the link with the intended output transaction. ³⁰

48Such a link appears to exist, as the Commission also pointed out in its written observations, between the consultancy service provided by Holst Advokater and the intended sale of the shares in Arovit Petfood. This is because the subject matter of the consultancy advice was specifically the drafting of a contract for the sale of the shares. Thus it appears that the expenses in respect of this advice are linked in a very direct way to the intended tax-exempt transaction.

49Nor is the consideration of this criterion contrary to the judgment in Iberdrola since, having regard to the immediacy of the link, a very generous criterion was applied in that judgment. However, in that situation, the Court did not rule on its attribution to a specific output transaction; its decision concerned solely the link with the overall economic activity of the taxable person. ³¹

50Having regard to those considerations, it is a matter for the referring court to ascertain ³² whether the consultancy services in question have a direct and immediate link to the sale of the shares in Arovit Petfood, which, under Article 135(1)(f) of the VAT Directive, is exempt from tax. Should that be the case, C&D Foods would not be entitled to deduct input tax.

3. Link with the overall economic activity

51As was also emphasized by the Commission in its written observations, it is only where the referring court cannot establish a direct and immediate link with the tax-exempt transactions resulting from the proposed sale of shares that the link with the overall economic activity should be examined. ³³

52In this regard, at its core, the same principles apply. In addition, in so far as the Court requires, with regard to the deductibility of general costs, that the costs of the input services should be incorporated in the prices of the goods or services supplied or provided by the taxable person, ³⁴ a mathematical mark-up on the prices is not prescribed. Instead, it describes the necessary economic linkage between the input and output services. ³⁵

53However, such a linkage does not require an actual increase in the price but merely that certain expenditure should form part of the elements of the price for the totality of the taxpayer’s products or services. This was also highlighted by the Commission in its written observations. The sole determining factor is thus that the input services are economically and objectively linked to the taxable activity, ³⁶ in such a way that the extent of the profit depends on it.

54Any other solution would result in denying a taxpayer who cannot or does not wish to increase his prices in the event of increased costs the right to deduct the input tax. This would clearly run counter to the principle of neutrality.

55It follows that the particular situation in respect of a fixed mark-up as contemplated in the second question referred by the national court is also no different. It is true that, in such a case — and this appears to be the object of the referring court’s question — it would not be possible for the expenditure on the consultancy services to be reflected in the prices which C&D Foods calculates for the management. This is because the calculation of the price consists of the labour costs plus a 10 % mark-up. However, this does not mean that a link with such transactions is excluded in every case. This is because, irrespective of an actual price increase, certain expenditure forms part of the elements of the cost of the goods supplied or services provided by a taxable person.

56However, it might be argued against a full right of deduction of input tax as general costs that the advice may also be linked to the disposal of the shares in the direct subsidiary (Arovit Holding), for which C&D Foods acts purely as a holding company. ³⁷ Therefore, an apportionment of the input tax deduction between the economic and non-economic activities of the company might be necessary. However, the questions referred for a preliminary ruling do not point in this direction and the decision to refer does not contain sufficient information to enable an appropriate answer to be given.

57It should be recalled, however, that the link with the overall economic activity is in any event irrelevant if it is already possible clearly to attribute it to a specific tax-exempt output transaction. In such a case it is not possible to allow it as a general cost.

V. Conclusion

58In view of the considerations set out above, the questions referred for a preliminary ruling by the Vestre Landsret (High Court for Western Denmark) should be answered as follows:

Article 9(1) of Directive 2006/112/EC is to be interpreted as meaning that economic activity within the meaning of that provision includes, in addition to the preparatory acts for the establishment of that activity, the acts which lead to its termination. For that reason, the disposal of shares in a sub-subsidiary, by which a taxable activity which was previously exercised is terminated, namely the involvement in the management of that company in order to carry out taxable transactions, constitutes an economic activity within the meaning of Article 9(1) of Directive 2006/112.

Article 168 of Directive 2006/112 is to be interpreted as meaning that a holding company cannot claim a deduction of input tax for consultancy services that are subject to VAT which were availed of prior to a proposed disposal of shares in a sub-subsidiary if there is a direct and immediate link between those consultancy services and the intended transactions arising from the sale of the shares which are tax exempt under Article 135(1)(f) of Directive 2006/112. This is a matter for the national court to determine.

¹ Original language: German.

² See, for example, judgments of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268); of 14 November 2000, Floridienne and Berginvest (C‑142/99, EU:C:2000:623); of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495); of 6 September 2012, Portugal Telecom (C‑496/11, EU:C:2012:557); of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496); and, finally, my Opinion in Ryanair (C‑249/17, EU:C:2018:301).

³ Of particular note for this case is the judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665).

⁴ Council Directive of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

⁵ Under established case-law this constitutes an economic activity: see judgments of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 21); of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, 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).

⁶ In this regard, see the judgment of 22 February 2001, Abbey National (C‑408/98, EU:C:2001:110, paragraph 32).

⁷ Judgments of 16 July 1992, Meilicke (C‑83/91, EU:C:1992:332, paragraph 23); of 22 November 2005, Mangold (C‑144/04, EU:C:2005:709, paragraphs 34 und 37); and of 21 December 2016, Tele2 Sverige and Watson and Others (C‑203/15 and C‑698/15, EU:C:2016:970, paragraph 130).

⁸ Judgments of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268, paragraph 17); of 14 November 2000, Floridienne and Berginvest (C‑142/99, EU:C:2000:623, paragraph 17); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 20).

⁹ Judgments of 20 June 1991, Polysar Investments Netherlands (C‑60/90, EU:C:1991:268, paragraph 14); of 14 November 2000, Floridienne and Berginvest (C‑142/99, EU:C:2000:623, paragraph 17); of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 19); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 20).

¹⁰ Judgments of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 21); of 6 September 2012, Portugal Telecom (C‑496/11, EU:C:2012:557, paragraph 34); and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 21).

¹¹ Judgment of 5 July 2018, Marle Participations (C‑320/17, EU:C:2018:537, paragraph 35) — it is, however, questionable in this respect whether the letting of property really can be regarded as ‘involvement in the management’ of a company.

¹² Judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 34).

¹³ Judgments of 20 June 1996, WellcomeTrust (C‑155/94, EU:C:1996:243, paragraph 33); of 3 March 2005, Fini H (C‑32/03, EU:C:2005:128, paragraphs 22 to 24); of 26 May 2005, Kretztechnik (C‑465/03, EU:C:2005:320, paragraph 19); and of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 34).

¹⁴ In this regard, judgments of 22 February 2001, Abbey National (C‑408/98, EU:C:2001:110, paragraph 35); of 29 April 2004, Faxworld (C‑137/02, EU:C:2004:267, paragraph 39); and of 3 March 2005, Fini H (C‑32/03, EU:C:2005:128, paragraphs 23 and 24).

¹⁵ Judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 33).

¹⁶ Judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 32).

¹⁷ Judgments of 22 February 2001, Abbey National (C‑408/98, EU:C:2001:110, paragraph 35); of 29 April 2004, Faxworld (C‑137/02, EU:C:2004:267, paragraph 39); and of 3 March 2005, Fini H (C‑32/03, EU:C:2005:128, paragraphs 23 and 24).

¹⁸ See judgments of 12 January 2006, Optigen and Others (C‑354/03, C‑355/03 and C‑484/03, EU:C:2006:16, paragraph 44); of 6 July 2006, Kittel and Recolta Recycling (C‑439/04 and C‑440/04, EU:C:2006:446, paragraph 41); and of 16 December 2010, Euro Tyre Holding (C‑430/09, EU:C:2010:786, paragraph 28).

¹⁹ Judgments of 6 April 1995, BLP Group (C‑4/94, EU:C:1995:107, paragraph 24); of 8 June 2000, Midland Bank (C‑98/98, EU:C:2000:300, paragraph 20); of 6 September 2012, Portugal Telecom (C‑496/11, EU:C:2012:557, paragraph 38); and of 22 February 2001, Abbey National (C‑408/98, EU:C:2001:110, paragraph 25).

²⁰ Judgment of 6 April 1995, BLP Group (C‑4/94, EU:C:1995:107, paragraph 27). The existence of a direct and immediate link will be examined below; see point 36 et seq. of this Opinion.

²¹ Judgments of 6 April 1995, BLP Group (C‑4/94, EU:C:1995:107, paragraphs 18 and 19); of 8 June 2000, Midland Bank (C‑98/98, EU:C:2000:300, paragraph 20); and of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 57).

²² Judgments of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 31); of 26 May 2005, Kretztechnik (C‑465/03, EU:C:2005:320, paragraph 35); of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 57); and of 14 September 2017, Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 28).

²³ Judgments of 27 September 2001, Cibo Participations (C‑16/00, EU:C:2001:495, paragraph 33); of 26 May 2005, Kretztechnik (C‑465/03, EU:C:2005:320, paragraph 37); of 6 September 2012, Portugal Telecom (C‑496/11, EU:C:2012:557, paragraph 37); and of 14 September 2017, Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 29).

²⁴ There are some exceptions regulated by, for instance, Article 169 of the VAT Directive.

²⁵ Judgments of 6 April 1995, BLP Group (C‑4/94, EU:C:1995:107, paragraph 28); of 14 September 2006, Wollny (C‑72/05, EU:C:2006:573, paragraph 20); of 12 February 2009, Vereniging Noordelijke Land- en Tuinbouw Organisatie (C‑515/07, EU:C:2009:88, paragraph 28); of 13 March 2008, Securenta (C‑437/06, EU:C:2008:166, paragraph 30); of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 59); and my Opinion in Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, point 37).

²⁶ Judgments of 13 December 2001, CSC Financial Services (C‑235/00, EU:C:2001:696, paragraph 33) and of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 48).

²⁷ See point 26 of this Opinion.

²⁸ See, in this regard, my Opinion in Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, points 36 and 37).

²⁹ Judgments of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 62) and of 30 May 2013, X (C‑651/11, EU:C:2013:346, paragraph 56).

³⁰ See judgments of 29 November 2012, Gran Via Moineşti (C‑257/11, EU:C:2012:759, paragraph 27) and of 22 October 2015, Sveda (C‑126/14, EU:C:2015:712, paragraph 20).

³¹ See judgment of 14 September 2017, Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 29).

³² Judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraphs 63 and 73).

³³ See, in this regard, my Opinion in Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, points 36 and 37).

³⁴ Judgment of 29 October 2009, AB SKF (C‑29/08, EU:C:2009:665, paragraph 60).

³⁵ See, in this regard, in detail, my Opinion in Iberdrola Immobiliaria Real Estate Investments (C‑132/16, EU:C:2017:283, points 25 to 31).

³⁶ Judgment of 22 October 2015, Sveda (C-126/14, EU:C:2015:712, paragraph 29).

³⁷ According to the case-law, pure financial holding companies are, however, not to be regarded as liable to tax within the meaning of Article 9(1) of the VAT Directive: see judgments of 20 June 1991, Polysar Investments Netherlands (C-60/90, EU:C:1991:268, paragraph 17); of 14 November 2000, Floridienne and Berginvest (C-142/99, EU:C:2000:623, paragraph 17); of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt (C-108/14 and C-109/14, EU:C:2015:496, paragraph 20); and point 24 of the present Opinion.