Advocate General opinions

DSAB Destination Stockholm AB (C-637/20) concerned ‘City Cards’ which provided the right of admission (once only) to around 60 tourist attractions in Stockholm for a limited time and up to a certain value. During the validity of the card, holders also had the right to unlimited transport services. Some of the services were subject to VAT (at various rates) and some were exempt. The supplier received consideration from the issuer for each admission or use. The card had to be used within one year of purchase and expired once the value limit has been reached.

The Advocate General opined that the City Cards satisfied both of the conditions to be regarded as a ‘voucher’ for the purposes of the Principal VAT Directive, being that:

• the suppliers of goods or services must accept it as consideration or part consideration for a supply of goods or services they provide; and
• the goods or services to be supplied or the identities of their potential suppliers must be either indicated on the instrument itself or in related documentation.

The cards were not however single-purpose vouchers (SPVs) because at the time the cards were purchased, it was not known which of the services would actually be supplied — that is, to which attractions and which transport services the buyer of the card would actually seek admission.

In the view of the Advocate General, it did not matter whether the supplier had to accept the card as consideration only once or every time the cardholder wanted to use it for the same service. Nor did it matter that a tourist would not have time to visit all of the attractions.

The result of the card being a multi-purpose voucher (MPVs) was that VAT should not be charged at the time of DSAB's sale of the city cards, but only after each buyer had used the full value of the card or its validity period has expired.

Further, if the value of all services redeemed in practice was lower than the price paid for the voucher, the VAT on that ‘profit margin’ had to be accounted for by the issuer of the card; Once the card has been used, the issuing organisation, being the taxpayer, had to gather information from the various suppliers and pay consideration including VAT for the services actually provided. After that, the taxpayer had to account for VAT on the difference between the consideration received for the card and the consideration it has paid for the transactions actually carried out.

DLA Piper comment: An interesting case to follow for companies issuing cards/vouchers for which it is debatable whether they would qualify as SPV or MPV. It remains to be seen if the CJEU follows the A-G and/or provides any guidance in this respect (in addition to the explanatory notes). However, the vouchers certainly appear to constitute multipurpose vouchers within the meaning of Article 30(a) of the Principal VAT Directive. The accounting for VAT by the issuer in these circumstances gives rise to some complexity. This case shows that vouchers remain a hot topic of discussion.

In W-GmbH (C-98/21), the Advocate General was asked whether the taxpayer, as a management holding company supplying VAT taxable services to its subsidiaries was also entitled to recover input tax on third party services acquired and on-provided to its subsidiaries in exchange for a share of their profits even though the third party services had no direct and immediate link to the taxpayer’s own activities but rather with the (largely) exempt activities of the subsidiaries, the price of the third party services were not cost components of the supplies to the subsidiaries and were not part of the general costs of the economic activity applicable to the holding company.

The taxpayer was a ‘mixed holding company’, that is, one which carried on its own business of construction projects and supplying VAT taxable services to its subsidiaries (administrative and accounting services relating to the recruitment of staff, preparation of accounts and tax returns) in addition to exercising its rights as shareholder. The taxpayer also procured certain planning, architectural and marketing services from third parties which it contributed to each of the subsidiaries in exchange for partner contributions. Each of the subsidiaries carried out exempt activities related to residential real estate.

The German tax authority considered that input tax incurred by the taxpayer on services supplied to third parties was not deductible on the grounds that the taxpayer’s contributions for the benefit of the subsidiaries were non-taxable activities.

The Advocate General accepted that the taxpayer was a taxable person since it supplied its subsidiaries with administrative and accounting services which were subject to VAT. However, it was clear to the Advocate General that there was no direct and immediate link between the services the taxpayer received from third parties and its own economic activities; the third-party services were not used for the purposes of its taxable supplies but were instead contributed to its subsidiaries and a contribution ‘in kind’ did not constitute an economic activity. The third-party services had a direct and immediate link with the activities of the subsidiaries and did not constitute ‘general expenses’ of the taxpayer since the taxpayer did not benefit from them itself; examples of ‘general expenses’ of a holding company were costs of legal or accounting advice linked to the acquisition of holdings in the subsidiaries.

Abuse of rights?

Although these conclusions were enough to decide the case, the Advocate General went on to consider whether the intervention by the management holding company in the acquisition of the third-party services constituted an abuse of rights.

Concluding that the arrangements did fall within the doctrine, the Advocate General contrasted the outcome of the arrangements adopted by the taxpayer with the hypothetical situations where the taxpayer on-supplied the services to the subsidiaries for consideration or where the taxpayer formed a VAT group with its subsidiaries, which would both have led to irrecoverable VAT.

Even though there may have been commercial reasons for the structure adopted by the taxpayer, the Advocate General opined that it would nonetheless fall within the ambit of the doctrine of abuse of rights if it could be said that the overriding objective of the transaction was obtaining the tax benefit.

DLA Piper comment: This is an interesting case because the holding company had both taxable and non-business activities. Following Larentia & Minerva Case C-108 and C109/14, this would not necessarily lead to any input VAT restriction. Businesses should be careful when setting up holding company structures in order to avoid VAT leakage as VAT leakage can occur when services are not directly related to holding company’s own VAT taxable transactions. It is established case law that the actual use of the acquired goods and/or services can be decisive for the VAT recovery right of the acquirer. Meaning, that when services are actually used for non-taxable activities the input VAT recovery may be restricted. Readers will also note that this arrangement constituted abuse.