Spain’s Supreme Court issued a decision on 11 March 2026 addressing VAT deduction rules following an audit of a taxpayer that acted both as the head of a VAT group and as a mixed holding company (for prior coverage see the article in the July 2024 issue of Indirect Tax News).
A mixed holding company is a company that acquires and holds shares in other entities/undertakings and also provides taxable management services. For VAT purposes, the mere holding of shares does not qualify as an economic activity, so the company is not considered a taxable person and, hence, it is unable to reclaim input VAT paid. However, a mixed company may be able to deduct the input VAT related to the management activity so the VAT will become partially deductible. The taxpayer in the case deducted all the input VAT incurred in its VAT returns.
During the audit, the Spanish tax authorities took the position that the company carried out two distinct types of services for VAT purposes:
The Supreme Court upheld the tax authorities’ view, confirming that intragroup transfers of shareholdings by a mixed holding company must be treated as a “financial activity.” It rejected the taxpayer’s argument that such “portfolio activity” should be considered part of its management/support services. The court also dismissed the argument that the relevant share transfer was sporadic or incidental and, therefore, should be excluded from the pro rata calculation. It accepted the lower court’s finding that the transactions were habitual, strategically driven and linked to the group’s overall operations.
Further, the court clarified that an intragroup transfer of shareholdings may fall outside the scope of VAT only when it effectively constitutes the indirect transfer of an “autonomous economic unit” capable of operating independently. In such cases, the transaction may be excluded from the pro rata calculation. Applying this standard, the Supreme Court held that the taxpayer had not demonstrated the existence of an autonomous economic unit, particularly because no organisational or functional structure was transferred and the recipient already possessed the necessary know-how and resources. The transaction was therefore subject to VAT.
The decision provides greater legal certainty for mixed holding companies in two key areas:
Ana Iglesias Querol
BDO in Spain
A mixed holding company is a company that acquires and holds shares in other entities/undertakings and also provides taxable management services. For VAT purposes, the mere holding of shares does not qualify as an economic activity, so the company is not considered a taxable person and, hence, it is unable to reclaim input VAT paid. However, a mixed company may be able to deduct the input VAT related to the management activity so the VAT will become partially deductible. The taxpayer in the case deducted all the input VAT incurred in its VAT returns.
During the audit, the Spanish tax authorities took the position that the company carried out two distinct types of services for VAT purposes:
- Management/support services provided to group companies for which a full VAT deduction is allowed; and
- Financial activities, including granting loans/guarantees and acquiring, holding and selling shareholdings, which are exempt from VAT and for which there is no right to an input VAT deduction.
Supreme Court Decision
The Supreme Court upheld the tax authorities’ view, confirming that intragroup transfers of shareholdings by a mixed holding company must be treated as a “financial activity.” It rejected the taxpayer’s argument that such “portfolio activity” should be considered part of its management/support services. The court also dismissed the argument that the relevant share transfer was sporadic or incidental and, therefore, should be excluded from the pro rata calculation. It accepted the lower court’s finding that the transactions were habitual, strategically driven and linked to the group’s overall operations.Further, the court clarified that an intragroup transfer of shareholdings may fall outside the scope of VAT only when it effectively constitutes the indirect transfer of an “autonomous economic unit” capable of operating independently. In such cases, the transaction may be excluded from the pro rata calculation. Applying this standard, the Supreme Court held that the taxpayer had not demonstrated the existence of an autonomous economic unit, particularly because no organisational or functional structure was transferred and the recipient already possessed the necessary know-how and resources. The transaction was therefore subject to VAT.
BDO Takeaway
The decision provides greater legal certainty for mixed holding companies in two key areas:
- Portfolio activity is generally considered a financial activity, not part of management support services, with direct implications for input VAT deductions; and
- Intragroup share transfers may fall outside the scope of VAT but only where they involve the transfer of an autonomous economic unit.
Ana Iglesias Querol
BDO in Spain