ECJ case – VAT on share sale costs
An important ECJ judgement relating to the VAT recoverability of share sale costs has been released. The ECJ examined the activities of a Swedish holding company which supplied management services to group companies. The Swedish holding company sought to recover VAT it incurred on supplies of services as part of a transaction which involved the disposal of shares of a subsidiary.
The Swedish tax authorities blocked the recovery of any VAT and the matter was ultimately referred to the ECJ for a ruling. The ECJ said that the disposal of shares was exempt from VAT as the holding company was carrying out an ‘economic activity’. The economic activity related to the supply of management services by the holding company. The management services were subject to VAT. The ECJ further said that VAT is recoverable where there is a direct and immediate link between the costs associated with the input services and the overall economic activities of the taxable person.
The ECJ also said that a member state’s refusal to allow the recovery of VAT incurred on the supply of services relating to a disposal of shares would be an infringement of the principle of fiscal neutrality where the holding company supplied management services to the subsidiary.
In the UK, HMRC currently treat VAT incurred on costs relating to share sale costs as irrecoverable. This ECJ judgement should be carefully considered by any UK holding companies that have incurred ‘irrecoverable’ VAT in similar circumstances to determine whether there is a possibility of submitting protective claims for unrecovered VAT.