The transferred business must be capable of operating
The transfer of a business or an independent part of it may qualify for treatment as a transfer of a going concern rather than a supply for VAT purposes. In the Netherlands, the relevant provision is Article 37d of the Dutch VAT Act. The recipient must continue the business or intend to do so. A collection of separate assets does not automatically qualify. Identify the connected activities, resources and rights that actually pass to the recipient.
Assess retained property separately
In A&P Deco, the seller retained the building and subsequently let it, exempt from VAT, to the buyer of the business. That new leasehold right did not form part of the transferred business. The change to exempt letting required the seller to adjust previously deducted VAT. The buyer’s continuation of taxable business activities did not remove that consequence. Examine the use of property that remains with the transferor as well as the assets being transferred.
A contribution of property requires a tax assessment
Peckeger concerns, among other matters, a sole shareholder’s contribution of property without receiving new shares or other actual consideration. A deemed supply for VAT purposes may still arise, unless the business transfer rules apply. A movement of assets within your own structure therefore deserves the same substantive assessment as a transaction with an unrelated party. The judgment does not give a general guarantee that every property contribution can take place without VAT.
Several recipients change the first transfer step
Szytelbiecka concerned a proposed gift of a business in two undivided half interests. The daughters intended subsequently to contribute those interests to their joint partnership. In those circumstances, each separate interest did not constitute an independently operable business. The intended joint continuation did not retrospectively turn the initial transfers into qualifying business transfers. This finding concerns interests in the business and its assets; it is not a general rule governing transfers of BV shares.
Record the tax consequences before signing
For each step, identify the direct recipient, what is being transferred and who will continue the activities. Review lease arrangements, entitlement to deduct VAT and any remaining adjustment periods separately. These questions belong in the preparation of the agreement and price negotiations, rather than only in the first tax return following the transfer.
A clear overview connects the legal transaction with its tax treatment. It also identifies missing information and the assumptions adopted by the parties. Seller and buyer can then agree on documentation and responsibilities before the business or property changes hands.
More information from Oudshoorn
Sources and background
Original source publication: — PwC on VAT and business transfers.
