I. Case C-651/11: Staatssecretaris van Financiën v X BV
This case, a preliminary ruling from the Court of Justice of the European Union (CJEU), addresses the interpretation of Articles 5(8) and 6(5) of the Sixth VAT Directive (77/388/EEC) concerning the “transfer of a totality of assets or part thereof.” The core issue revolves around whether the sale of 30% of shares in a company, by a shareholder who also provides VAT-taxable services to that company, qualifies as such a transfer.
A. Background:
- Dispute: The case concerns a VAT assessment imposed on X BV (“X”) after it deducted VAT on services it received in connection with the sale of its 30% shareholding in A BV (“A”). X argued the share disposal constituted the transfer of a totality of assets/services and that the costs were part of general economic activity and therefore deductible.
- X’s Activities: X held 30% of shares in company A and also provided management services to A, like other shareholders, for remuneration. X resigned from management and sold shares to D plc at the end of 1996.
- National Court Referral: The Hoge Raad der Nederlanden (Supreme Court of the Netherlands) referred the matter to the CJEU for a preliminary ruling, seeking clarification on whether the share disposal qualified as a “transfer of a totality of assets or part thereof” under the Sixth Directive.
B. Key Questions Referred:
The Hoge Raad asked three key questions:
- Does the disposal of 30% of shares in a company, by a shareholder who supplies VAT-taxable services to that company, constitute a “transfer of (part of) a totality of assets” under Article 5(8) and/or of services under Article 6(5) of the Sixth Directive?
- If the answer to the first question is no, does the fact that all shareholders sell all their shares to the same purchaser at around the same time change the outcome?
- If the answer to the second question is also no, can the disposal be considered a transfer of part of the undertaking, considering its close link to management activities?
C. CJEU’s Ruling and Reasoning:
The CJEU ruled that the disposal of 30% of the shares in a company to which the transferor supplies services that are subject to VAT does not amount to the transfer of a totality of assets or services or part thereof within the meaning of those provisions. This holds true regardless of whether all shareholders sell their shares to the same buyer at the same time, or whether the disposal is closely linked to management activities.
The Court’s reasoning is based on several key points:
- Independent Concept of EU Law: The concept of “transfer of a totality of assets or part thereof” is an independent concept of EU law, requiring uniform interpretation.
- Transfer of Business vs. Simple Asset Transfer: The concept covers the transfer of a business or independent part of an undertaking capable of carrying on an independent economic activity, not a simple transfer of assets. “The Court has interpreted that concept as meaning that it covers the transfer of a business or an independent part of an undertaking including tangible elements and, as the case may be, intangible elements which, together, constitute an undertaking or a part of an undertaking capable of carrying on an independent economic activity, but that it does not cover the simple transfer of assets, such as the sale of a stock of products”
- Shareholding vs. Independent Activity: Holding shares alone does not constitute an independent economic activity. “Unlike the holding of the assets of an undertaking, the holding of shares in an undertaking is not sufficient to allow an independent economic activity to be carried on.” Mere acquisition, holding, and sale of shares is not an economic activity. This is different when direct or indirect involvement in the management of the companies in which the holding has been acquired, if that entails carrying out transactions which are subject to VAT.”
- Shareholders are not owners of the underlying assets: “Shareholders are not owners of the assets of the undertaking in which they hold their shares; they are owners of the shares…” Therefore, selling the shares is not the same as selling the business.
- Purpose of Article 5(8): The provision aims to facilitate transfers of undertakings by simplifying them and preventing disproportionate VAT charges. This concern doesn’t apply to share transfers, as they are either not subject to VAT or are exempt. “The specific purpose of Article 5(8) of the Sixth Directive is to facilitate transfers of undertakings or of parts of undertakings by making such transfers simpler and by preventing the resources of the recipient from being overburdened by a disproportionate charge to tax which, in any event, would ultimately be recovered through deduction of the input VAT paid…”
- Individual Assessment: Each transaction must be assessed individually and independently. The fact that multiple shareholders sell to the same buyer doesn’t change the analysis for each individual sale.
D. Implications for Deductibility:
The CJEU clarified that the right to deduct VAT depends on whether input transactions have a direct and immediate link to output transactions giving rise to a right to deduct. If not, it must be determined if the costs are part of the general costs linked to the taxable person’s overall economic activity. Since the disposal of shares is an exempt transaction, a right to deduct exists only if the cost of the services supplied to X in relation to that disposal is part of the general costs relating to its overall economic activity, without being incorporated in the sale price of those shares. The Hoge Raad must determine if this condition is met.
See also
- C-651/11 (X BV) – The transfer of 30% of the shares in a BV for which the transferor provides VAT-taxed services does not constitute a Transfer of Going Concern
- Roadtrip through ECJ Cases – Focus on ”Transfer of Going Concern” (Art.19 EU VAT Directive)
- Join the Linkedin Group on ECJ/CJEU/General Court VAT Cases, click HERE
- VATupdate.com – Your FREE source of information on ECJ VAT Cases
