C-60/90

P01.Y5AR INVESTMENTS NETHERLANDS

O P I N I O N OF MR ADVOCATE GENERAL VAN G E R V E N delivered on 24 April 1991 *

Mr President, holding of shares in subsidiary companies Members of the Court, can be regarded as a 'taxable person' within the meaning of the Sixth Directive; 1 secondly, if a holding company can be regarded as a taxable person, whether the activities it carries on are to be regarded as services exempt from turnover tax and 1. Polysar Investments Netherlands B. V. whether the company can rely, by virtue of (hereinafter 'Polysar'), a company incor- those activities, on the right to deduct the porated under Netherlands law, is a member value added tax it has paid. of the world-wide Polysar group. According to the order for reference, Polysar is not engaged in any 'trading ac- tivities' and acts exclusively as a holding company owning shares in a large number of foreign companies, which are engaged in the production and sale of synthetic rubber 2. The facts of the case may be summarized products and the like. Polysar is a wholly as follows: Polysar paid turnover tax in owned subsidiary of Polysar Holdings respect of certain services provided by Limited, a holding company incorporated in advisers (including accountants). It Canada, itself a wholly owned subsidiary of requested and received a refund of the value Polysar Limited, which is also incorporated added tax paid from 1981 to 1985 inclusive. in Canada. The latter company's shares are However, the tax inspector subsequently in part listed on the Canadian Stock issued to Polysar a notice of assessment to Exchange, and in part held by a number of turnover tax, whose validity forms the banks and the Canada Development subject-matter of this dispute. Corporation.

the holding of shares in subsidiary The term 'taxable person' companies be regarded as a taxable person within the meaning of Articles 4 and 17 of the Sixth Directive on the harmonization of the laws of the Member States 4. In answering Question 1(a), I wish to relating to turnover taxes? take as my point of departure the aim and characteristics of the common system of value added tax. The aim of the system established by the Sixth Directive has been explained by the Court on several occasions: it is to ensure that all economic activities are taxed in a wholly neutral way by the (b) If not, is the holding company none collection of a tax on consumption which is the less a taxable person if it forms a strictly proportionate to the price of the link in and an integral part of a goods and services and which is chargeable world-wide group of undertakings only after deduction of the amount of the which in the main outwardly appears value added tax borne directly by the under a single name, the group various components of the price of the name? goods and services; only taxable persons have the right to deduct value added tax already charged, hence the tax is ultimately borne by the final consumer. 2

2. (a) If a holding company must be considered a taxable person, are the Article 4 of the Sixth Directive, which activities in which it engages as such defines who is to be regarded as a 'taxable transactions within the meaning of person', reads as follows: Article 13B(d)(5) of the directive, so that they must be considered to be services exempt from turnover tax and the turnover tax charged by third parties in this regard is not deductible? '1 "Taxable person" shall mean any person who independently carries out in any place any economic activities specified in paragraph 2, whatever the purpose or results of that activity.

agricultural activities and activities of the resources in itself constitutes an 'economic professions. The exploitation of tangible activity' which, in my view, cannot be or intangible property for the purpose of inferred from the case-law of the Court, in obtaining income therefrom on a particular from the judgments in continuing basis shall also be considered Rompelman 5 a n d Van Tiem. 6 Both an economic activity. judgments were concerned not only with an investment, that is to say the acquisition of property (in the former case, future title to an apartment, and in the latter, title to a » building plot), but also with the property acquired subsequently being made available to a third party for consideration (in the former case by the letting of the apartment, and in the latter by the grant of building In conformity with the aim of the Sixth rights over the plot). The mere acquisition Directive to ensure a high degree of of a holding in a company does not entail neutrality in taxation by means of a broad making it available in that way. The definition of the term 'taxable person', 3the dividends which may subsequently be Court has repeatedly emphasized in its payable to the shareholder are, in my view, case-law that Article 4 of the directive not to be regarded as ' i n c o m e . . . on a confers a very wide scope on value added continuing basis' from the 'exploitation' of tax, comprising all stages of production, property; they are merely benefits which the distribution and the provision of services. 4 owner may receive from property and which are yielded by the mere holding thereof. If a different view were taken, any holder of shares or securities would have to be regarded as a taxable person. 5. On the basis of the wording of Article 4 of the Sixth Directive and the wide interpre- tation which the Court has given of the term 'taxable person', there can be no doubt, according to Polysar, of its status as a taxable person on the ground that it carries on business independently and exploits property (in particular its holdings in subsidiary companies) for the purpose of The position would be different only where obtaining income (in particular dividends) a company engages in share transactions therefrom on a continuing basis. which go beyond the activities of a normal investor in connection with the usual management of his assets, for instance where a company regularly buys and sells shares as profit-making transactions. In such Polysar's contention is based on the premise a case, repeated transactions which involve that the mere investment of financial buying and selling may be regarded as economic activities. That situation does not 3 — See, for instance, the fifth recital in the preamble to the Sixth Directive arise, however, in the case of a holding 4 — See, most recently, the judgment in Case C-186/89 Van company such as Polysar, which forms a Tiem v Staatssecretaris van Financien [1990] ECR I-4363. 'link' in a group of companies and which with reference to the judgment in Case 235/85 Commtmon v Netherlands [1987] ECR 1485, at paragraph 7, and the judgment in Case 348/87 Stichting Uitvoering Financíele Acties v Staatssecretaris van Financien [1989] ECR 1737, at 5 — Cited in footnote 2 paragraph 10 6 — Cited in footnote 4

Nor, in my view, is there any question of economic activities independently carried on within the meaning of Article 4(1) of the 6. The question remains whether liability to Sixth Directive in the case of activities tax may be inferred from the other activities which the holding company, or persons of a holding company. The national court acting in its name, carries out in its capacity has pointed out that Polysar's activities are as director or officer of a subsidiary concerned solely with the holding of shares company. A director or officer of the in subsidiary companies. It seems to me that company does not act on his own behalf but such activities, which are undertaken in the only binds the (subsidiary) company whose exercise of shareholders' rights, do not instrument he is; in other words, where he constitute 'economic activities' within the acts in the exercise of his duties under the meaning of the directive. The exercise of company instruments, there is no question those rights includes, for instance, partici- of his acting 'independently'. In that regard, pation in the general meeting of the his actions must be equated with those of an subsidiary's shareholders, the exercise of the employee who, as Article 4(4) of the Sixth right to vote at the meeting and the possi- Directive expressly states, does not act bility of influencing company policy thereby 'independently'. and, where appropriate, involvement in the decision appointing the company's directors or officers and/or apportioning the subsidiary's profits, as well as the receipt of any dividends declared by the subsidiary or 7. The answer to Question 1(a) must the exercise of shareholders' preferential therefore be that a holding company whose rights or options. activities are concerned solely with the holding of shares in subsidiary companies and with the exercise of the rights connected therewith, or which do not go beyond the internal structure (of the holding or subsidiary company), does not carry on 'economic activities' within the meaning of Article 4(1) of the Sixth In addition to the aforesaid activities which Directive and cannot therefore be regarded a holding company carries on as a share- as a taxable person within the meaning of holder in other companies, there are ac- that directive. tivities which, like any other company, it carries on through its organs and which, in so far as they are conducted within the company (in its relations with the share- 8. Should the question be answered holders and the company's organs) also differently, the national court asks in cannot be regarded as 'economic activities', Question 1(b), if the holding company within the meaning of the Sixth Directive. forms a link in and an integral part of a Those activities include the administration world-wide group which in the main of the holding company, the making up of outwardly appears under a single name, the the annual accounts, the organization of the group name?

That question seems to be based on the matters which enables the tax authorities to wording of the second subparagraph of treat as a single person for the purposes of Article 4(4) of the Sixth Directive, whose the application of value added tax two or wording is as follows: more legally independent persons who engage in economic activities on their own account as a result of the close financial, economic and organizational links between them, with the result that transactions between the two do not give rise to the 'Subject to the consultations provided for in charging and payment of turnover tax. Article 29, each Member State may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organizational links.' 7 It seems to me, however, that the aforesaid provision is not aimed at amending the conditions for liability to tax which are set out in Article 4(1) of the Sixth Directive. Furthermore, even if that were the aim of the second subparagraph of Article 4(4),

organizational links. The question which arises is whether that option enables a Member State to treat two persons who are closely bound to one another as a single The right to deduct tax taxable person where it is established that one of those persons does not engage in any 'economic activities' within the meaning of Article 4 of the directive. In my view, that question must be answered in the negative. I share the Commission's view that, in order 10. If we assume (as I did above) that a to establish whether there is liability to tax, company like Polysar is not to be regarded it is necessary to focus on the activities of as a taxable person, the second question each legal person separately, and not on the becomes devoid of purpose since only activities of the concern as a whole. The taxable persons have the right to deduct tax. second subparagraph of Article 4(4) of the Sixth Directive does not derogate from that 8 — It is apparent from the facts as set out in the order for reference that, apart from Polysar, the Polysar group has principle: it is a rule designed to simplify another two subsidiaries in the Netherlands If the Court takes the view that a company like Polysar 'independently carries out any economic activity' within the meaning 7 — The 'consultations provided for in Article 29' means of Article 4 of lhe Sixth Directive, i t is for the competent consultation of the Advisory Committee on value added national authorities to establish whether Polysar is 'closely tax According to the observations of the Netherlands bound by financial, economic and organizational links' Government and the Commission, such consultation took to those companies, so as to constitute a single unit for tax place in the case of the Netherlands purposes

A holding company like Polysar does not seem to me to carry on 'as such' (see above) any activities which may be regarded as taxable pursuant to Article 2 of the Sixth 11. In Question 2(a) the national court Directive (leaving aside the question, to be seeks to ascertain whether the activities dealt with in paragraph 13 below, whether engaged in by a holding company 'as such' those activities, if they were (and thus to the exclusion of other activities taxable — which is not the case — are to be which, as I assumed in the previous regarded as exempt). As I explained earlier, paragraph, are carried out by Polysar and I consider that activities engaged in by a confer upon the latter the status of a taxable holding company as shareholder in, or person) may be regarded as exempted ac- director of, one or more subsidiaries or tivities within the meaning of Article which form part of the company's internal 13B(d)(5) of the Sixth Directive. operations, in particular in its relations with its own shareholder(s), are in no circum- stances to be regarded as 'economic ac- tivities' within the meaning of Article 4 of the directive. Nor can such activities be regarded as falling within the scope of the rules on value added tax and thus taxable in principle, in other words as supplies of To ensure a proper understanding of this goods or services within the meaning of question, I must begin with an account of Article 2(1) of the Sixth Directive. the system established by the Sixth Directive in relation to the right to deduct tax. The 9 — See in that connection the judgment, given on the basis of general rule concerning the right to deduct the system established by the Second Directive, in Case 89/81 Staatssecretaris van Financiën v Hong Kong Trade tax is set out in Article 17(2) of the [1982] ECR 1277, in which it was inferred from the fact directive, and is as follows: a taxable person that a person carries out transactions free of charge only (and does not therefore acquire any right to deduct tax) is entitled to deduct the value added tax he that that person is not a taxable person.

However, there is an exception in Article 17(3)(c) to the general rule that tax may not be deducted. By way of exception, that provision confers on taxable persons (that is to say, on the assumption made here — see paragraph 1C above — on a holding company such as Polysar as well) a right to deduct tax in respect of a number of (in I do not believe that, even in those circum- principle taxable but) exempted activities, stances, Article 13B(d) can be applied to the provided the recipient is established outside activities of a holding company such as the Community. They include the activities Polysar. More specifically, it seems to me listed in Anicie 13B(d)(5) of the Sixth that the exemption contained in Article Directive, to which Question 2(a) relates. 13B(d)(3) in respect of 'transactions, including negotiation, concerning deposit and current accounts, payments, transfers . . . ' does not apply to payments made within a company (such as, for instance, the paying out of a dividend by the holding company to its shareholder(s)). The I consider that Polysar is equally unable to same holds true as regards the exemption exercise this specific right of deduction in provided for in Article 13B(d)(5) in respect respect of the activities which it engages in of 'transactions . . . in shares', which in my as such, that is to say as a holding company, view bears no relation to the exercise by the for the same reasons, namely that those shareholder of the rights attaching to his activities do not constitute economic activi- shares. 1C Nor can the latter activity be ties within the meaning of Article 4(1) of regarded as falling within the expression the Sixth Directive and therefore are not in 'management and safekeeping' (which is principle taxable (or, consequently, excluded from the exemption in Article exempted) either. 13B(d)(5) and thus constitutes a taxable activity), which in my view relates to the management and safekeeping of another's shares. "

Furthermore, even on the assumption that would lead to complex problems of char- the aforesaid activities are taxable activities geability and carry an obvious risk of abuse. which fall within the exemption in Article 13B(d), I do not believe they can confer a special right to deduct tax pursuant to Article 17(3)(c). That special right arises 14. I shall be brief in my observations on only where the goods and services in respect Question 2(b). The answer to that question of which value added tax has been paid 'are follows from what I have already said in used', in the terms of the first sentence of connection with Question 1(b). The second Article 17(3), for the purposes of activities subparagraph of Article 4(4) of the Sixth which are exempt. It seems to me that, since Directive gives Member States the possibility the special right to a deduction conferred by in certain cases of treating as a single Article 17(3)(c) is of an exceptional nature, taxable person two or more legally inde- that requirement must be interpreted in such pendent persons who carry on economic a way that the right to a deduction is activities on their own account. However, available only where and in so far as the that option does not have the effect of goods and services are used directly for the widening, in one way or the other, the purposes of one of the activities listed in general or exceptional rules on deduction Article 13B(d). A different interpretation considered above.

Conclusion

15. In the light of the foregoing considerations, I propose that the Court should answer the questions submitted for a preliminary ruling as follows:

tivities referred to in the answer to Question 1(a) are still not taxable within the meaning of Article 17(2) of the Sixth Directive and do not fall within the exemptions provided for in Article 13B(d). Nor do such activities lçonfer a special right to a deduction pursuant to Article 17(3) of the Sixth Directive.

Questions 1(b) and 2(b)

For the purposes of the answer to Questions 1(a) and 2(a), the fact that the holding company forms an integral part of a world-wide group which in the main outwardly appears under a single name, the group name, and in which other companies are to be regarded as taxable persons providing taxable services is immaterial.'

I-3131