THE EUROPEAN UNION’S uppermost court has rejected a complaint from the European Commission about the structure of Ireland’s VAT laws.

The Luxembourg-based court rejected the Commission’s arguments that Ireland was in breach of a European directive which governs how VAT is levied on groups of companies.

Under Irish law a holding company, whose only role is to hold shares in other companies, is not obliged to pay VAT because it does not engage in any trading itself.

However, Ireland groups those non-taxable holding companies together with their subsidiaries when calculating their joint VAT liabilities, on the basis that a holding company can be held responsible for the liabilities of its subsidiary if it was to go bust.

The Commission opposed this, believing that a directive agreed by member states in 2006 did not provide for taxable and non-taxable entities to be grouped together for this purpose.

The European Court of Justice ruled this morning that it was ‘not evident’ that Ireland’s VAT laws were contrary to the objectives of the directive.

It found, “on the contrary”, that Ireland’s laws made it simpler for both companies and tax authorities to evaluate the financial affairs of a group of companies, and helped to cut down on fraud by ensuring close links between each of the companies concerned.

The case had been expected to fall in Ireland’s favour since last year, when an advocate-general – who issues non-binding opinions on cases before the ECJ’s judges make a final decision – had found in Ireland’s favour.

The Commission was ordered to pay Ireland’s legal costs.

Four other EU member states – the UK, Denmark, Finland and the Czech Republic – had been joined in the case as ‘interveners’, as they operated similar systems to Ireland and also wanted to put forward arguments in Ireland’s favour.