close
Share with your friends

Netherlands: VAT recovery, professional expenses for sale of a participation

Netherlands: VAT recovery, professional expenses

The Advocate General of the Court of Justice of the European Union (CJEU) issued an opinion in a case concerning the recovery of value added tax (VAT) on professional expenses incurred with respect to a proposed but ultimately unrealized sale of shares. The Advocate General concluded that the professional services were related to a VAT-exempt shares sale that, in principle, gave rise to a VAT recovery limitation on such expenses.

1000

Related content

Summary

A Danish company (the taxpayer) was part of an international group, and indirectly held all the shares of a pet food company for which the taxpayer also performed management services for a fee. Facing economic difficulties, the international group decided to explore whether to restructure the group, and engage a law firm to assist in a proposed sale of the shares of the pet food company. The law firm drafted an agreement for a sale with an unnamed buyer. Eventually, the taxpayer abandoned the sale because a suitable buyer was not found. 

The Advocate General noted that in principle, the sale of shares would be exempt from VAT. However, it was further noted that the taxpayer conducted VAT-able transactions with respect to the management services that it performed for the pet food company in exchange for a fee. The Advocate General took the positon that there was a direct and immediate relationship between the legal fees incurred by the taxpayer and the proposed VAT-exempt share sale. 

Only if a direct and immediate relationship were not established would the legal fees need to be reviewed to see whether they were connected with the overall economic activity of the business. If there is such a finding, then there could be a (partial) right to deduct VAT in accordance with the usual VAT-recovery right of the business. 

Implications for Dutch taxpayers

Under current Dutch practice, if the taxpayer were the party selling the participation, there would generally be a right to recover VAT on the professional advisor fees pursuant to the usual VAT recovery right that applies for general overhead (as elaborated in a decree from the Deputy Minister of Finance). Tax professionals in the Netherlands believe that the same VAT consequences would also apply in the case of a proposed but unrealized sale of shares.

Businesses considering or involved in the sale of participations for which costs are incurred in connection with the preparation of the sale need to consider reviewing their VAT position because if the CJEU were to adopt the opinion of the Advocate General, this might affect the right to recover VAT in the case of proposed (VAT-exempt or VAT-taxed) services in other sectors, such as the healthcare sector, education, and real estate. 

 

Read a September 2018 report prepared by the KPMG member firm in the Netherlands

© 2019 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal