Tax base for management services of subsidiaries by a holding company – CJEU judgment

On 3 July 2025, the CJEU once again spoke on the VAT treatment of intra-group transactions – this time in judgment C-808/23 Högkullen.

Factual state

Högkullen AB, the Swedish parent company in the real estate management group, operated solely in the area of ​​managing subsidiaries and provided them with paid management, financial, personnel, etc. services. The remuneration due to the parent company was determined in accordance with the OED transfer pricing guidelines, based on the cost plus method, i.e. taking into account the costs of purchasing and providing services, and a profit margin. However, the calculation of remuneration excluded costs incurred in connection with the planned share issue and listing the company on the stock exchange. And that was important because in the disputed year of 2016 the company made a number of long-term investments, as a result of which the costs incurred exceeded the income from its activities on behalf of subsidiaries many times over.

The Swedish tax authority questioned the price of services agreed between related entities, stating that the management services provided to the subsidiaries cannot be assessed separately and independently, but they constitute comprehensive sui generis services (having no market equivalent).

Consequently, the tax base for VAT should not be the price at which each of the services could be purchased separately on the free market, but the total costs incurred by Högkullen in 2016 – including investment costs. According to the authority (and after it – the court of appeal), the inclusion of all costs in the tax base was supported, firstly, by the fact that the company’s activity was limited solely to managing subsidiaries, and also by the fact that it deducted 100% of the VAT charged on expenses incurred in that year – including the costs of long-term investments, not included in the price of the services.

To illustrate the scale of the overestimation made by the authority, it should be mentioned that “shareholder’s costs”, included by it in the tax base, exceeded the cost of providing services determined by the company more than 10 times.

The case was submitted to the Court of Justice of the European Union. There were two issues:

• Are tax authorities allowed to consider that the services provided by the parent company to its subsidiaries constitute comprehensive sui generis services, which precludes the application of comparable market prices?
• Does the fact that Högkullen conducts business solely in the management of subsidiaries and deducts 100% of the VAT charged on the expenses incurred entitle it to include all the costs incurred in the tax base?

The CJEU’s ruling

The CJEU made a conclusion favourable to the taxpayer finding that, as a rule, services provided to subsidiaries, such as business management, financial, real estate management, investment, IT and personnel management services, are not so closely linked to each other that they objectively constitute one economically inseparable service. They cannot therefore be automatically classified as one complex service excluding the application of the comparator method. In particular, the fact that the remuneration covers one total amount is not decisive in this assessment. Consequently, the free market value of the services can be determined by comparison with the market prices of similar ones and there is no need to refer to an alternative method of determining the value based on all the costs incurred.

In the absence of a finding of sui generis services, the CJEU considered the second question to be moot.

However, it is worth pausing over the opinion issued in this case by the Advocate General of the CJEU Juliane Kokott, who recalled that tax base revaluation mechanisms may be implemented in order to prevent tax evasion by taxpayers. Contrary to the claims of the Swedish authority, the mere fact that the VAT deducted by Högkullen in the year in question exceeds the amount of tax due for services provided to subsidiaries does not constitute tax avoidance. The lack of profit by the supplier is irrelevant in the context of the right to deduct VAT and to determine the tax base for the services provided. It is not the role of the tax authority to assess the profitability of the taxpayer’s business, as such a right is denied by the very structure of the value added tax.

The Advocate General indicated that in this specific case, the risk of reduced tax revenues could only be assessed in the context of Högkullen’s full VAT deduction, despite the fact that only approx. half of its purchases was actually related to the taxable activities and the remaining half was related to the performance of ownership functions. Therefore, even if the disputed services were to be classified as sui generis services, the tax authority would not have the right to automatically attribute all acquisitions made in 2016 to them. The revaluation of the tax base could cover only that part of the company’s costs related to taxable activities (approx. 50%), and within this part the proportion of investment expenses attributable to 2016 should be determined.

Significance of the judgment

The judgment, as well as the opinion of the Advocate General in the Högkullen case constitute another voice in the discussion on the principles of VAT taxation of services provided within capital groups. The Court puts a stop to the automatic lumping all services provided to subsidiaries together under the label “sui generis“, solely for the purpose of estimating the tax base to the amount of all costs incurred in a situation where individual services could be purchased independently on the market without major obstacles.

Moreover, the Advocate General recalled that the right to deduct VAT must be proportionate and dependent on the actual link between the acquisitions and the VAT taxed economic activity. This right cannot be dependent on the profitability of the activity conducted by the taxpayer or on the ratio of costs to revenues, as the construction of VAT as an indirect consumption tax essentially ignores these issues.

The opinion in the Högkullen case corresponds to the judgment of 12 December 2024, ref. C-527/23, Weatherford Atlas Gip, already discussed by MDDP, where the CJEU raised the lack of the right to challenge the deduction of VAT based on a subjective assessment of the business rationale of the transaction in a situation where the authorities did not find any signs of fraud or abuse.