When Are Securities Transactions an Economic Activity?

An analysis of the case law of the Court of Justice of the EU and its application in Bulgaria

The starting point: the exemption under Article 135(1)(f) of the VAT Directive

As a rule, transactions in shares and other securities are exempt from VAT at EU level under Article 135(1)(f) of Directive 2006/112/EC and, in Bulgaria, under Article 46(1)(5) of the Bulgarian VAT Act, which transposes that provision verbatim. The rule exempts transactions, including negotiation, concerning interests in companies, shares, other securities, and their derivatives.

The exemption, however, raises a preliminary question on which everything else depends: is the person carrying out an economic activity at all? Only a taxable person acting as such can fall within the scope of VAT and therefore either benefit from the exemption or suffer input VAT deduction restrictions.

The Court of Justice of the European Union has answered this question many times, building a coherent set of criteria.

The general rule: the "personal portfolio" is outside the scope of VAT

The starting point is Polysar Investments Netherlands (C-60/90) (opens in a new tab), later confirmed in a long line of judgments: the mere acquisition and holding of shares does not constitute an economic activity within the meaning of the Directive. Receiving dividends is a consequence of ownership, not consideration for a service, and therefore remains outside the field of VAT.

In Wellcome Trust (C-155/94) (opens in a new tab), the Court held that the purchase and sale of shares and other securities by a trustee in the course of managing the assets of a charitable trust did not constitute an economic activity within the meaning of Article 4(2) of the Sixth Directive. The decisive point was that investment activities involving the acquisition and sale of shares with a view to maximising dividends and capital return do not fall within the scope of economic activities under the former Article 4(2) of the Sixth Directive, now Article 9(1) of Directive 2006/112.

The three exceptions: when transactions cross the line

The Court has identified three situations in which the purchase and sale of securities leaves the sphere of a "personal portfolio" and becomes an economic activity.

Exception 1: Securities trading as a profession

The person acts as a securities trader: buying and selling systematically on the market with the aim of generating income from the trading activity itself, not only from dividends or capital gains as an incidental consequence of ownership. Even a significant scale of investment activity is not enough on its own. The person must act in a manner analogous to a trader providing services to third parties.

The aim of the sale must be to obtain income through regular sales. Only then can one speak of exploitation of property within the meaning of the second sentence of Article 4(2) of the Sixth Directive.

Exception 2: Direct or indirect involvement in the management of the company

The acquisition of shareholdings, accompanied by direct or indirect involvement in the management of the companies concerned, must be regarded as an economic activity where that involvement entails carrying out VAT-taxable transactions, such as the provision by the holding company of administrative, financial, commercial, and technical services to its subsidiaries.

This is the classic case of an active holding company: a company that does not merely hold shares but provides paid management, accounting, marketing, or technical services to its subsidiaries carries out an economic activity. A sale of a shareholding in such a subsidiary is no longer simply a "personal portfolio" transaction.

Exception 3: Direct, permanent, and necessary extension of the main taxable activity

In AB SKF (C-29/08) (opens in a new tab), the Court held that the sale of shares in a subsidiary by a holding company that had supplied taxable management services to that subsidiary constituted a direct, permanent, and necessary extension of the holding company's taxable activity.

A sale carried out to raise funds for financing other activities of the group may be viewed as a transaction through which the company obtains income on a continuing basis from activities going beyond a simple sale of shares.

Régie Dauphinoise (C-306/94) (opens in a new tab) applies similar logic in the context of interest income: where financial transactions arise directly from the main taxable activity and complement it in a necessary way, they cannot be treated as outside the scope of VAT.

Practical significance in Bulgaria

The exemption and input VAT deduction

Where an individual or legal entity trades regularly and actively on financial markets, that person is a taxable person within the meaning of the Bulgarian VAT Act, but the transactions carried out are exempt from VAT under Article 46 of the Act. A key consequence is that companies making exempt supplies of financial instruments cannot deduct input VAT on related expenses, including brokerage commissions, platforms, and licences.

The mandatory registration threshold: a brief history

The threshold has gone through three phases in less than two years:

• from 1 January 2025 — increased to BGN 166,000 (State Gazette No. 106/2023);
• from 1 April 2025 — reduced back to BGN 100,000 (State Gazette No. 26/27.03.2025), with mandatory registration arising when taxable turnover was reached over a period not longer than the last 12 consecutive months before that date;
• from 1 January 2026 — expressed in euros as EUR 51,130, the exact equivalent of BGN 100,000 at the fixed EUR/BGN exchange rate of 1.95583.

The new logic from 2026: calendar year, not a rolling window

The material change introduced by the new Article 168v of the Bulgarian VAT Act is that turnover is now monitored by calendar year, not over the previous 12 consecutive months. This means the count starts on 1 January and resets when the year changes. A person may not apply the domestic small enterprise scheme for one calendar year if the national threshold was exceeded during the previous calendar year.

Practical example: if a person exceeds EUR 51,130 in turnover on 15 October 2026, the obligation to register arises from that date. But if the person has not exceeded the threshold by 31 December 2026, the count starts again from 1 January 2027.

Summary

This publication is for informational purposes only and does not constitute legal or tax advice. For specific cases, I recommend consulting a licensed tax consultant or attorney.

Verified against: EUR-Lex (C-60/90, C-155/94, C-306/94, C-29/08); Bulgarian VAT Act Art. 46(1)(5); Art. 96(1) (State Gazette No. 26/2025); Art. 168v of the Bulgarian VAT Act (State Gazette No. 115/2025, in force from 01.01.2026).