Portugal Telecom: a new door open for holding companies to deduct input VAT

Abstract

The Sixth Directive, like the VAT Directive today, did not expressly define the VAT status of holding companies, which from the beginning appeared likely to raise complex questions. The ECJ began to delineate that status in 1990 in the Polysar case. The ECJ ruling of September 2012 in the Portugal Telecom case was another brick in the wall, and a significant brick at that. In the Polysar ruling, one piece of the puzzle of the VAT status of holding companies, which had not been clear until then, was finally settled: a pure holding company, meaning a company whose sole object is the mere acquisition and holding of shares in other enterprises, is not a taxable person within the meaning of VAT, because it does not carry on an economic activity. In fact, in the terms of the VAT Directives, ‘taxable person’ means any person who independently carries on an economic activity as defined firstly in the Sixth Directive and now in Article 9 of the VAT Directive. On the other hand, Article 4(2) of the Sixth Direc-