CJEU: Open Door For VAT Recovery On Transaction Costs In Case Of Share Disposal

C&D Foods carried out 2 activities, respectively the holding of shares in its subsidiary, Arovit Holding A/S, and the provision of taxable management services to its sub-subsidiary, Arovit Petfood. Due to the bank failure of the former shareholder of the Arovit group, the creditor, Kaupthing Bank, assumed ownership of the group and intended to sell all the shares of Arovit Petfood in order to satisfy its debts. For the purpose of this sale, C&D Foods incurred advisory costs and subsequently sought to recover the input VAT on such costs even though the sale in question ultimately never took place.

The CJEU ruled that a sale of shares, in itself, does not constitute an economic activity, implying that no deduction of input VAT on related costs can be granted. However, if the direct and exclusive reason for the share sale relates to the taxable activity of the parent company, or constitutes a direct, permanent and necessary extension of the parent company's taxable activity, a VAT deduction right may be recognised. According to the CJEU, this would be the case if a sale of shares is carried out with the purpose of allocating the proceeds directly to the taxable activity of the parent company or to the economic activity carried out by the group of which it is the parent company.

In the case at hand, since it was clear that the objective of the sale of shares was to settle...