ECJ refuses to treat share sales as transfers of a going concern for VAT purposes

30 May 2013

The ECJ has just given judgment in Case C-651/11 X v Staatsecretaris van Financien, which concerns the eligibility of share sales to be treated as a transfer of a going concern under what is now Article 19 of the Principal VAT Directive (PVD).  The Netherlands, like the UK, treats the transfers of the “totality of assets or part thereof” (referred to as a “transfer of a going concern” in the UK) as not being a supply of goods or services: as a result, generally the transferor and transferee can treat expenses incurred in such transfers as part of the general overheads associated with its entire economic activity and deduct input tax on those expenses accordingly.

In the case referred to the ECJ by the Dutch Supreme Court, X claimed that the sale of the 30% shareholding that it held in company (‘A’)  was a transfer of the “totality of assets or part thereof” because X also carried out management work for A for consideration.   The ECJ agreed with the Dutch Government, supported by the UK, that the claim should be rejected.  The ECJ held that the transfer of shares could not be equated to the transfer of totality of assets or part thereof.  It was irrelevant that the sale was accompanied by the sale to the same purchaser by all the other shareholders of their shareholdings in company C. The management service did not assist X because it was not an autonomous undertaking which could be operated independently by the transferee as it ceased on the sale.   The ECJ noted a previous case (SKF) where it had held that the transfer of a 100% shareholding could amount to a transfer of assets, but it cast some doubt on the correctness of, and certainly the wider application of, that earlier ruling.

The ruling essentially confirms that pure share sales are unlikely to qualify as transfers as a going concern.  It may have implications for those advising on business asset sales involving share transfers and for a number of cases currently before the tax tribunals.

Raymond Hill and George Peretz acted for the United Kingdom in the ECJ.

To read the full judgement please click here