- Annual granting of loans to subsidiaries can amount to an economic activity 

 

"[66] As regards the question whether, in such a situation, a holding company supplies that service in the capacity of a taxable person, the Court has held, at paragraph 18 of the judgment in Régie dauphinoise, that a person carrying out transactions which constitute the direct, continuous, and necessary extension of the person’s taxable activity, such as the receipt by a managing agent of interest resulting from the placements of monies received from clients in the course of managing those clients’ properties, acts in that capacity.
[67] That is with stronger reason the case when the transactions concerned are carried out with a business or commercial purpose characterised by, in particular, the wish to maximise returns from capital invested.
[68] It is clear that an undertaking acts thus if it uses funds forming part of its assets to supply services constituting an economic activity within the meaning of the Sixth Directive, such as the granting of interest-bearing loans by a holding company to companies in which it has shareholdings, whether those loans are granted as economic support to those companies or as placements of treasury surpluses or for other reasons.
[69] Interest paid to an undertaking in consideration of bank deposits or placements in securities such as Treasury notes or certificates of deposit likewise cannot be excluded from the scope of VAT, since the interest paid does not arise from the simple ownership of the asset but constitutes the consideration for making capital available for the benefit of a third party (see, to that effect, Régie dauphinoise, paragraph 17). It follows from the preceding paragraph that an undertaking [70] Therefore, it must be held that the annual granting by a holding company of interest-bearing loans to companies in which it has a shareholding and placements by that holding company in bank deposits or in securities, such as Treasury notes or certificates of deposit, constitute economic activities carried out by a taxable person acting as such within the meaning of Articles 2(1) and 4(2) of the Sixth Directive." (EDM C-77/01)

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