VAT treatment in the transfer of companies in the EU
VAT treatment in the transfer of companies in the EU
Business Transfer Situations: TOGC and VAT Implications
A business transfer situation arises, for example, when an Amazon account is sold to another legal entity. Taxation of such a transaction often becomes a key concern. The situation is further complicated when the account is sold alongside goods stored in warehouses across different countries. One approach to handle such a sale is through the “Transfer of a Going Concern” (TOGC) scheme.
VAT Liability
The regulation of business transfers is grounded in a unified legislative framework: Article 19 of Directive No. 2006/112/EC (the “VAT Directive”), which states:
In the case of the transfer, whether for consideration or not, or as a contribution to a company, of a total or partial asset, Member States may regard this as not constituting a supply of goods and treat the person to whom the assets are transferred as the successor to the transferor.
However, Member States may, in cases where the recipient is not fully taxable, take measures to avoid distortions of competition. They may also take measures necessary to prevent tax evasion or avoidance in the application of this Article.
This EU provision gives Member States the discretion to exclude the characterization of a supply of goods based on the inherent nature of certain or all assets forming a business.
The option provided to Member States regarding the classification of a business transfer as a supply of goods aims to alleviate the financial strain on businesses. Without this exemption, VAT applied to the transfer of a business could result in financial instability for the parties involved in the transaction.
This principle is supported by numerous legal precedents in France, Italy, and Spain, with EU Court and jurisprudence affirming TOGC practices. It is also reflected in the guidance provided by tax authorities.
Country-Specific Legal Frameworks
| Country | Basis (Article of Law) | Quote |
|---|---|---|
| United Kingdom | Section 44 of the Value Added Tax Act 1994 (VATA), Regulation 50 of the Value Added Tax Regulations 1991 | “The supply of an asset forming part of a business or part of a business as a going concern.” |
| Germany | Section 15(1) of the Umsatzsteuergesetz (UStG) | “Der Verkauf eines Unternehmens… ist steuerfrei.” (“The sale of a business is tax-free.”) |
| France | Article 261C of the Code général des impôts (CGI) | “La cession d’une entreprise… est exonérée de TVA.” (“The transfer of a business is exempt from VAT.”) |
| Spain | Article 20.2.b) of the Ley del Impuesto sobre el Valor Añadido (LIVA) | “La transmisión… se realice como actividad económica.” (“The transfer… as a business activity.”) |
| Italy | Article 2, paragraph 3, subparagraph d) of the Italian VAT Decree | “La cessione di azienda… è esente da IVA.” (“The transfer of a business is VAT-exempt.”) |
| Sweden | Section 3, paragraph 2 of the Swedish VAT Act (Mervärdesskattelagen) | “Överlåtelse… är befriad från skatt.” (“The transfer… is exempt from tax.”) |
| Netherlands | Article 6, paragraph 1, subparagraph b) of the Dutch VAT Act | “De levering van een onderneming… is onbelastbaar.” (“The supply of a business… is tax-exempt.”) |
| Poland | Article 43, paragraph 1, item 2 of the Polish VAT Act | “Dostawa przedsiębiorstwa… jest zwolniona od podatku.” (“The supply of a business… is tax-exempt.”) |
Summary
When goods are transferred as part of a TOGC, the transaction is treated as being outside the scope of VAT. This means the seller does not charge VAT, and the buyer does not pay VAT on the goods.
Moreover:
- The acquirer is not required to pay VAT on assets included in the TOGC.
- The seller does not need to adjust the input VAT previously claimed for those goods.
Procedure
- Agreement Preparation: The parties must sign a business transfer agreement detailing the business and its value.
- VAT Deregistration: The selling entity must deregister for VAT in the country where it ceases operations.
- Final VAT Return: The seller submits a final VAT return for the period up to the business transfer date.
- Tax Authority Notification: A copy of the business transfer agreement is provided to local tax authorities.
Tax Risks
For cross-border transfers:
- The transfer of assets and liabilities must be separately accounted for in each country.
- Supporting documents must be issued in the national languages.
Local tax authorities may challenge the VAT-free treatment of inventory transfers or request additional documentation. Failure to provide sufficient proof may result in the seller needing to adjust the previously claimed input VAT.