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Denmark: Purpose of sale of shares may limit VAT refund

Denmark: Purpose of sale of shares may limit VAT refund

The Court of Justice of the European Union (CJEU) issued a judgment in a case concerning a claim for the recovery (refund) of value added tax (VAT) on expenses related to a proposed, but ultimately unrealized, sale of shares.


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The CJEU deemed the purpose for which the shares were to be sold was decisive as to whether the recovery (refund) of VAT paid on professional advisor fees would be allowed. The taxpayer intended to use the proceeds of the sale to repay a debt owed to a bank (the bank was also a shareholder). According to the CJEU, the shares’ sale by the taxpayer in this instance would be an activity outside the scope of VAT. Consequently, the VAT imposed with respect to the professional advisor fees was nondeductible and not refundable.

The case is: C&D Foods, C-502/17 (8 November 2018)


A Danish company was a member of an international group, and indirectly held all the shares in a petfood entity and provided management and IT-related services to this participation. At a point in time, the shares of the group ended up in the hands of a bank which had acquired these shares for €1 because the then-current owner could not meet its payment commitments to that bank. The bank intended to sell the shares in the petfood entity.

A law firm was engaged with respect to the sale of the petfood company shares, and the law firm drew up a draft agreement with an unnamed buyer. The taxpayer (the indirect shareholder of the petfood entity) ultimately abandoned the sale because no suitable buyer could be found. The taxpayer fully deducted the VAT paid on the professional advisor fees, but the Danish tax authorities refused to grant a VAT refund.

The CJEU confirmed that the taxpayer had intended to use the proposed sale of the shares to repay its outstanding debt at its bank (a new shareholder of the group). According to the CJEU, such a sale of shares was not directly related to the VAT-able services of the taxpayer. Therefore, the sale of the participation was outside the scope of VAT, and there was no VAT refund allowable for the professional advisor fees.

KPMG observation

The bank having acquired the group had always intended to sell the petfood entity because this would mean that the bank would no longer act as a creditor of the group. It was also the bank that had arranged the professional advisor services. The only reason for selling the participation, thus, was to use the proceeds of the sale to repay existing debt owed to the bank (the new shareholder). The direct link with the VAT-able activities of the taxpayer was absent in this context. The CJEU seemed to suggest a direct link between the professional advisor services and the shareholder interests of the group.

It appears that the CJEU judgment must be regarded in the specific context of these facts. The judgment expressly leaves room for a full or partial VAT recovery of professional advisor fees in the event of a sale of shares if the sale takes place in the context of a restructuring or rationalization of a group on its own initiative.


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

Read also a January 2019 report prepared by the KPMG member firm in the UK

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