Flashback on ECJ Cases – 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

On May 13, 2013, the ECJ issued its decision in the case C-651/11 (X BV).

Context: VAT – Sixth Directive 77/388/EEC – Article 5(8) – Concept of ‘transfer of a totality of assets or part thereof’ – Disposal of 30% of the shares in a company to which the transferor supplies services that are subject to VAT

Article in the EU VAT Directive

Articles 5(8) and/or 6(5) of the Sixth VAT Directive (Articles 19 and 29 of the EU VAT Directive 2006/112/EC).

Article 19 (Taxable transaction – Supply of Goods)
In the event of a transfer, whether for consideration or not or as a contribution to a company, of a totality of assets or part thereof, Member States may consider that no supply of goods has taken place and that the person to whom the goods are transferred is to be treated as the successor to the transferor.
Member States may, in cases where the recipient is not wholly liable to tax, take the measures necessary to prevent distortion of competition. They may also adopt any measures needed to prevent tax evasion or avoidance through the use of this Article.

Article 29 (Taxable transaction – Supply of Services)
Article 19 shall apply in like manner to the supply of services.

Facts

In 1996, X held 30% of the shares in A BV (‘A’), a company carrying on business in the field of automation. The remaining shares in A were held by B Holding BV (20.01%), X1 Beheer BV (30%) and C BV (19.99%).
As a member of the ‘Management Board’, X, like B Holding BV and XI Beheer BV, carried out management work for A in return for a contractually agreed remuneration.
At the end of 1996, X and the other holders of shares in A sold their shares to D plc. In connection with that sale, the management work for A came to an end and X resigned from A’s Management Board.
A number of services were supplied to X in conjunction with that sale of shares, and the invoices provided for VAT to be charged. X deducted that VAT in its VAT returns, on the basis that the disposal of its shareholding constituted the transfer of a totality of assets and of services and that the costs incurred by X in connection with that transaction had to be considered part of the general costs associated with its entire economic activity and were, therefore, fully deductible.
The Inspector, as the Netherlands competent authority for the collection of VAT, rejected that deduction and issued a notice of additional assessment. He subsequently dismissed X’s objection to that notice, although he reduced the amount.
The Gerechtshof te ’s-Gravenhage (Regional Court of Appeal, The Hague; ‘the Gerechtshof’) declared X’s appeal against the Inspector’s decision to be well-founded and annulled the notice of additional assessment. According to the Gerechtshof, the transfer of X’s shareholding was not within the scope of VAT because it was not an economic activity. It considered, however, that the input VAT could be deducted, since the shares were sold and transferred in conjunction with acts carried out by X as a trader.
The Staatssecretaris van Financiën appealed in cassation against the judgment of the Gerechtshof to the Hoge Raad der Nederlanden (Supreme Court of the Netherlands).
The referring court refers to Case C‑29/08 SKF [2009] ECR I‑10413 (paragraphs 32 to 34 and point 2 of the operative part) in support of the view that the relevant disposal of 30% of the shares in A, which occurred in conjunction with the cessation of management activities in respect of that company, is an economic activity and should be exempt pursuant to Article 13B(d)(5) of the Sixth Directive.
None the less, the Court had stated in paragraph 41 of SKF that a disposal of shares which is to be considered an economic activity is not subject to VAT where that disposal may be regarded as equivalent to the transfer of a totality of assets or part thereof and the Member State concerned has exercised the option provided for in the first sentence of Article 5(8) of the Sixth Directive.
The referring court considers that the right to deduct depends on the applicability of that provision to a disposal of shares such as that at issue in the main proceedings.

Questions

(1) Is the disposal of 30% of the shares in a company – to which the transferor of those shares supplies services that are subject to VAT – equivalent to the transfer of (part of) a totality of assets within the meaning of Article 5(8) and/or of services within the meaning of Article 6(5) of the Sixth Directive?

(2) If the answer to Question 1 is in the negative, is the disposal referred to in that question equivalent to the transfer of (part of) a totality of assets within the meaning of Article 5(8) and/or of services within the meaning of Article 6(5) of the Sixth Directive, where the other shareholders, who also supply services that are subject to VAT to the company whose shares have been disposed of, transfer all the other shares in that company to the same person (almost) at the same time?

(3) If the answer to the second question is also in the negative, can the disposal referred to in Question 1 be regarded as the transfer of (part of) the undertaking for the purposes of Article 5(8) and/or Article 6(5) of the Sixth Directive, taking into account the fact that that disposal is closely linked to management activities carried out for that participation?

AG Opinion

None

Decision

Articles 5(8) and/or 6(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be interpreted as meaning 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, irrespective of the fact that the other shareholders transfer all the other shares in that company to the same person at practically the same time and that that disposal is closely linked to management activities carried out for that company.

Summary

The transfer of 30% of the shares in a BV for which the transferor provides VAT-taxed services does not constitute a transfer of all or part of a generality of goods or services , irrespective of whether the other shareholders transfer all other shares to the same person almost simultaneously. in this BV and this transfer is closely related to the management activities performed for the same BV.

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