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Is it the end of VAT Exemptions and Sale of Shares for Property Companies?


An interesting, but worrying case for the real estate sector: back in April of this year, the Dutch Supreme Court requested a preliminary ruling from the European Court of Justice (ECJ) about its interpretation of the VAT exemption applicable to transactions including negotiation in shares and other securities. Taxand Luxembourg looks at the case and the VAT implications involved with such transfers.

This particular case involves a company, which provided advisory and management services in the real estate sector and acted as a negotiator in a number of sales of real estate properties. The transfer of the properties occurred by way of the sale of the shares of the companies owning the asset. These services were considered as VAT exempt by the service provider by virtue of the VAT exemption applicable to transaction in shares.

The Dutch Authorities, however argued that these services had to be considered as services connected to real estate and therefore had to be subject to VAT where the property is located (ie in the Netherlands). The main argument of the Dutch Authorities is that the service provider acted as a real estate broker and intended to find a purchaser paying the best price for the real estate. The fact that the deal was closed under the form of a sale of shares does not influence the nature of the services provided by the real estate broker.

Considering this, the Dutch Supreme Court requested a preliminary ruling from the ECJ on the following questions:

i) does the VAT Directive have to be interpreted that it includes activities carried out by a taxpayer, which concern the (indirect) transfer of real estate owned by companies, merely because the activities were aimed at and resulted in the transfer of shares of the companies concerned?

ii) does the exception concerning the exemption of Art. 13(B)(d)(5) of that Directive also apply if a Member State has used the option provided for in Art. 5(3)(c) of the Sixth VAT Directive to classify certificates and shares entitling to the ownership or use of real estate as tangible assets?

iii) if the preceding question is answered in the affirmative, does the term certificates and shares include shares in companies, which directly or indirectly (by means of subsidiaries) own real estate, regardless whether they exploit the real estate or use it for a different company?

Taxand's Take

The decision of the ECJ could have a major impact for the real estate sector as it will determine whether certain specific services in relation to the transfer of shares of property companies must be considered VAT exempt, or as services connected to real estate and thus, subject to VAT.

The case could open a broader debate, notably whether the VAT treatment of a given transaction is influenced not only by the nature of the transaction, but also by the underlying assets. Increasing the complexity of the already complicated VAT system is not the objective of the ECJ nor of the EU Commission. However, it certainly is a judgment to keep an eye on.

Your Taxand contacts for further queries are:
Christophe Plainchamp
T. +352 26 940 280

Nicolas Devillers
T. +352 26 940 204

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Taxand's Take Author