Court of Justice 14 May 2020, C-42/19 (Sonaecom SGPS SA v Autoridade Tributária e Aduaneira.)

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In this Opinion of Advocate General Kokott (Case C-42/19, Sonaecom SGPS SA v Autoridade Tributária e Aduaneira), the AG opines that a mixed holding company is entitled to full input VAT deduction under Articles 4 and 17 of the Sixth VAT Directive (77/388/EEC) in respect of consultancy services incurred in preparation for a share acquisition intended to be followed by the supply of taxable management services to the target, even where the acquisition ultimately did not materialise. However, the AG takes the view that where the capital raised through a bond issue was actually transferred to the parent company as an exempt loan within the same tax period, the direct and immediate link with that exempt transaction takes precedence over the original intention to use the funds for taxable purposes, thereby precluding deduction of the related bond issuance costs. The AG further opines that any subsequent change in use of the capital may trigger adjustment of the deduction under Article 20 of the Sixth Directive, but only in the tax period of that change and subject to the conditions governing capital goods, which services consumed upon issuance are unlikely to satisfy.AI