Private-equity fund is not a VAT taxable person and cannot deduct input VAT

The Dutch District Court has ruled that a private equity fund is not entitled to recover VAT on transaction costs incurred during the investment process.
The fund had acquired a target company indirectly via a BidCo and paid for services including due diligence investigations, legal and tax advice, and preparation of transaction documentation. The fund argued that it qualified as a VAT taxable person for the structuring and support rendered to BidCo and for arranging a supervisory board member for the target.
However, the Dutch Tax Authorities denied this right of deduction, and the court agreed that the fund was the end-consumer of the acquired services, with no direct link between the costs made and the activities towards BidCo.
The ruling could have severe implications for the private equity sector, and the fund has already submitted an appeal against the judgment.