C-29/08 AB SFK (judgment): VAT Reclaims On Costs Of Disposals Of ...

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Register C-29/08 AB SFK (judgment): VAT reclaims on costs of disposals of controlled companies by sale of shares Dorsey & Whitney LLP European Union, United Kingdom November 17 2009

The parent company incurred costs relating to the disposal of subsidiaries by sale of shares, these included: valuation, negotiation, and legal fees. It sought to recover the input tax paid on these services.

It was widely expected that the court would find that the input tax paid on these transactions was attributed to exempt supplies and was irrecoverable, however, in a decision which has the potential to have far reaching consequences the court posited two situations where recovery of input tax would be possible in circumstances where the vendor company was actively involved in the management of the subsidiary, i.e. where:

• the sale of shares represents a transfer or part transfer of assets of a business falling under Art 19 Recast VAT Directive. Transactions falling under Art 19 are not treated as supplies for VAT purposes and the input tax incurred on related costs is deductible as a general overhead of the company; and
• an exempt supply of shares is made but the costs associated with that supply have a direct and immediate link to the downstream economic activities of the taxable company. Input tax which can be attributed the outputs of the company’s wider economic activity would be, in these circumstances, recoverable.

Currently UK legislation takes a narrow view of input tax attribution in respect of the sale of shares and the applicability of Art 19 (through the TOGC Rules). Following this decision, it appears that the UK’s interpretation may be too restrictive.

All companies able to demonstrate active management in disposed (or part-disposed) controlled companies should consider lodging claims for recovery of input tax on associated costs. Please contact us if you have any questions on this.

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Filed under

• European Union
• United Kingdom
• Litigation
• Tax
• Dorsey & Whitney LLP

Topics

• Share (finance)
• Value added tax
• Attorney's fee
• Subsidiary
• Valuation (finance)

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