Sale of shares in subsidiary - VAT reclaim? - Intermediary services

The sale of shares in a subsidiary is an exempt activity for VAT purposes, so that VAT is not due on the sale of the shares. The downside of this is that there is also no right to deduct VAT on the costs attributable to the sale of shares. A discussion that is frequently held in the Netherlands.

In this case, an entrepreneur sold the shares in a subsidiary. The proceeds of this sale were used (by the parent company from the entrepreneur) to repay loans. All VAT that is directly attributable to the sale of shares is not eligible for deduction given the fact that the sale is an exempt activity. This could be different if the entrepreneur can demonstrate that the costs were partly incurred in the general interest of the business case because (for example) the proceeds were used to start new activities or expand existing activities. This means that the costs qualify as general costs and in many cases at least part of the VAT can be deducted (depending on the facts and circumstances). The entrepreneur in this case did not succeed in doing so because the proceeds were only used to repay loans from the parent company.

If the VAT on the attributable costs cannot be deducted, it can also be checked whether the costs have been incorrectly charged with VAT. For example, is there no exemption for this service? This can certainly be the case if the purchased services qualify as intermediary services in relation to the sale of shares. In this case, the court ruled that there was indeed a VAT-exempt intermediary activity. This avoids a significant amount of non-deductible VAT. The court is of the opinion that the activities of the service providers relate to intermediary services after assessment of the relevant agreements with these service providers. Important parts of these activities include approaching potential buyers, preparing management presentations, answering questions from potential buyers and other support activities in the sale of the shares.

This ruling clearly shows once again that it is worthwhile in these kinds of discussions to focus attention not only on the deduction of VAT, but also on the purchase of the services and the application of a possible exemption. The fact that third-party intermediary services in share transactions can be a VAT-exempt activity is certainly not new. However, in practice it is usually a challenge to determine whether the services qualify as mediation. This really requires a careful assessment and testing of the relevant activities and the agreement with the service provider.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com