Disposal of shares does not qualify as transfer of going concern (TOGC)
On 30 May 2013, the Court of Justice of the European Union (CJEU) published its decision in Case C-651/11 X BV and concluded that the sale of shares in a company does not necessarily qualify as transfer of going concern (TOGC). In the case at hand, a company disposed of 30% of the shares in a company, while the other shareholders were transferring their shares as well practically at the same time to a single recipient.
A TOGC requires the transfer of a business or an independent part of an undertaking including intangible assets and intangible assets which form an undertaking or part of an undertaking that is capable of carrying out an independent economic activity. It is also important that the transferee intends to carry on the business as opposed to the acquisition for the purpose of liquidation. The CJEU states that the criteria for TOGC were not met in the case at hand, as the disposal of 30% of the shares in a company does not amount to the transfer of a totality of assets or services or part thereof.
In addition, the fact that the transferor did provide management services to the company before the transfer of the shares is irrelevant, because the management activity was not part of the transfer of shares and no separate consideration had been paid. The cessation of the management activities is merely the logical result of the transfer of the shareholding.
The CJEU also stated that, since the disposal of shares constitutes a VAT exempt transaction, a right to deduct input VAT exists only insofar as the costs for the services supplied to the transferor in relation to the transfer of the shares is part of the general costs relating to the transferors overall economic activity, provided that those costs were not already considered for the calculation of the sale price for the shares.
With this decision, the CJEU has provided important information about what circumstances may lead to the rejection of TOGC and further advanced its case-law on this interesting aspect of VAT Law. The CJEU’s decision demonstrates once more that it is of paramount importance to carefully analyze each envisaged transaction in advance to verify whether the requirements for the assumption of a TOGC are fulfilled.
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