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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.


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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

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