ECJ buries the intermediary model: Decision of 8 September 2022, C-98/21

In September 2020, the Federal Fiscal Court (BFH) referred a case to the ECJ in which an entrepreneurial holding company was interposed for the purpose of "input tax optimisation". In his opinion, the Advocate General gave detailed reasons why this should be rejected (as we reportedhere and here). The ECJ is now finally putting the intermediary model to rest.

Plaintiff makes shareholder contributions instead of making a supply

The plaintiff held shares in two companies that carried out residential construction projects and sold these residential units predominantly VAT-exempt. They were therefore not entitled to an input VAT deduction from services purchased for this purpose. The holding company (the plaintiff) purchased services required by the companies and claimed the input VAT deduction. It did not charge these services to the companies as services but made (non-taxable) shareholder contributions in this respect. As a result, no non-deductible input VAT arose for the companies. In addition, the plaintiff provided VAT-taxable accounting and management services to the subsidiaries, thus establishing its status as a VAT-taxable person.

BFH referral

The BFH had submitted the question to the ECJ as to whether the plaintiff was entitled to an input VAT deduction in accordance with the VAT principles. If the ECJ confirmed this entitlement, the BFH wanted to know whether such a structure should be considered misuse and the input VAT deduction denied for this reason.

ECJ: No input VAT deduction

The ECJ began by stating that the services received by the plaintiff are not directly and immediately related to the paid accounting and management services, but rather to the largely VAT-exempt activities of the subsidiaries. The input VAT deduction would therefore only be possible if the costs for these input services were part of the plaintiff’s general expenses and as such were cost elements of the services it provided. The ECJ also denied this and referred to its earlier case law in which the decisive factor was whether it was the "exclusive reason for incurrence". The exclusive reason for the services received by the plaintiff was the shareholder contribution - the input services were therefore not cost elements of taxed output services.

In its previous case law, the European Court of Justice permitted input VAT to be deducted for input services received in connection with the acquisition of a subsidiary under certain conditions. However, this was not the case here as the input services did not serve the acquisition of the shareholding but were rather a shareholder contribution that was part of the non-taxable holding of the shareholding.

On the other hand, there was a direct and immediate connection between the services received by the plaintiff and the output services of the subsidiaries, from which it had to be concluded that there could not be such a connection with the plaintiff's output turnover.

The ECJ did not have to deal with the question of whether the assertion of the input VAT deduction by the plaintiff was a misuse as defined in § 42 of the General Fiscal Code (AO), since the input VAT deduction was already excluded for reasons relating to the original VAT law.


The input VAT deduction obtained through the intermediary model is contrary to the system.

The Advocate General made this clear in his opinion, implying that there would have been no input VAT deduction if:

  • the holding company would not have made a shareholder contribution but would have charged the services as such in the regular manner
  • the companies would have obtained the required services themselves from the outset
  • the holding company would not have made the shareholder contribution by contributing services, but rather through monetary payments, and the companies would have used this money to pay for the services they themselves obtained

It is to be expected that the BFH will rule in accordance with the ECJ ruling. It remains to be seen how the tax authorities will react to this. Companies should no longer claim input VAT deductions in comparable scenarios without disclosing this to the tax office. This primarily affects the financial services and real estate sectors, which are not - or not fully - entitled to deduct input VAT. For these companies, the non-deductible input VAT becomes a cost.

It remains to be seen what conclusions the BFH will draw from this ECJ decision for the V B 63/20 proceedings (our detailed discussion of this is available here). The BFH had suspended these proceedings in order to await the ECJ decision discussed here. However, in these suspended proceedings, the facts were different: the holding company brought an action for damages against the Spanish state for a reduction in the value of its subsidiary, which was allegedly caused by a change in the legal situation. The holding company claimed input VAT deduction from consultancy services related to this. The holding company did not charge these costs to the subsidiary. The tax office and the tax court denied the holding company the input VAT claim. The essential difference to the ECJ case now decided is that these consulting services were in the interest of the holding company, not in the interest of the subsidiary. There is a great deal of anticipation as to how the BFH will handle this.

17 October 2022