PwC Transactions Blog

The European Court of Justice (‘ECJ’) ECJ has ruled that the input VAT on the costs of selling shares in a subsidiary may be recoverable on the basis that they are residual, either because the sale is equivalent to a transfer of a going concern (TOGC) or because (if the sale is an exempt supply) the principle of neutrality requires it to be treated as if it were a TOGC.

Whilst the ECJ was unable to determine, on the facts before it, whether input VAT recovery would apply in the specific case, the principles set forward are highly significant because it casts doubt on many tax authorities’ longstanding policy that the input VAT on the costs incurred in disposing of a subsidiary is wholly irrecoverable because the costs are directly attributable to an exempt supply.

Hence, this decision has important implications for any business disposing of shares in a subsidiary to which it has supplied services, whether the disposal is forthcoming or whether it has happened in the past. It also impacts on how corporate groups should structure themselves in order to maximise their VAT recovery position.

Issues to consider include:

• which disposals fall within the scope of this decision (and which do not);
• what types of costs are not “incorporated in the cost” of the share disposal such that the input VAT not initially recovered may now be claimed;
• what effect (if any) does the presence of a VAT group have on the position;
• how should shares be held in order to maximise the chances of input VAT recovery on a future sale; and
• what remedies are available to businesses which have wrongly suffered blocked input VAT on share sales?

Businesses potentially affected by this decision, should as a matter of urgency assess:

• the application of this decision to their particular circumstances;
• the possibility of recovering input VAT on costs incurred in relation to future share disposals (in accordance with the VAT recovery profile of the business); and
• the identification of historic disposals on which input VAT recovery may have been wrongly denied and reclaiming it (together with interest).

In the end, this ECJ court case may lead to an unexpected December VAT cost saving.

In times where cash is king the Belgian Government has introduced VAT measures to free up working capital and help companies through the crisis.

Both for companies in a regular VAT refund position and companies in a regular VAT payable position special measures have been taken.

1. For companies in a VAT refund position, the conditions to get a VAT refund on a monthly basis have been eased.

In order to benefit from the monthly VAT refund, a company should now meet following conditions:

- At least 30% of the turnover of the calendar year preceding the request for monthly refund concerns:

• Supplies of goods and services that are exempt from Belgian VAT in accordance with articles 39, 39bis and 39quater of the Belgian VAT Code (amongst others intra-Community and export supplies of goods);
• Supplies of goods and services that are exempt from Belgian VAT in accordance with articles 40, § 2, 1° and 2°, 41, § 1, 2° to 7° and 42 of the Belgian VAT Code (amongst others international transport);
• Supplies of goods and services for which the co-contractant is liable to account for the Belgian VAT due in accordance with articles 51, § 2, 5° and 51, § 4, of the Belgian VAT Code;
• Supplies of goods and services for which the reduced VAT rate is applicable in accordance with articles 1bis, 1quater to 1sexies of Royal Decree n° 20 and headings XXXI, XXXII, XXXIII, XXXVI and XXXVII of table A enclosed to this Royal Decree;
• Supplies of goods and services that are located outside Belgium to the extent that the VAT credit comes from the pre-financing of VAT on these goods and services.

- The VAT credit during the calendar year preceding the request for monthly refund amounted at least to 12.000 EUR.

Companies that want to benefit from the monthly VAT refund, should submit a request with their local VAT inspector. Once the request is approved, the appropriate box of the Belgian VAT return will have to be ticked in order to get a VAT refund.

2. Companies in a VAT payable position that can demonstrate they face financial difficulties as a result of the economical crisis can apply for a postponement of the payment of VAT due.

The Belgian VAT authorities have published temporary measures to allow the postponement of VAT payments with a reduced late payment interest.

This temporary and exceptional measure is aimed at helping companies that encounter temporary financial/economic difficulties (including restricted access to banking credit) and does not apply to companies that were already suffering from financial difficulties regardless of the impact of the financial and economic crisis. The notion “economic/financial difficulties” should be assessed by the VAT Collectors with flexibility. The sector in which a company is active can already give a good indication.

Also foreign VAT taxable persons registered for Belgian VAT purposes (and accordingly registered in the National Register for Enterprises) should be able to benefit from this measure.

The measure will in principle allow the postponement of the payment of the VAT due over the first three quarters/resp. 9 months of 2009, without any penalties and at a reduced interest for late payment of 3% per year (instead of the standard 9,6% for VAT per year).

Taking into account the reduced interest of 3% on an annual basis this measure can be considered an interesting opportunity to free up working capital and help your company through the crisis. Compared to current market conditions, multiple corporates will indeed have to pay higher interest rates if they seek external funding.

To apply for the measure a company should demonstrate the temporary character of the financial difficulties encountered to the local VAT Collector with a duly motivated request. In case the VAT Collector acknowledges the temporary difficulties, the payment of VAT can be postponed for all (or some) periods concerned or an instalment plan can be agreed upon. Depending the case guarantees may need to be agreed upon. The payments should all be made by the end of 2009.

In any case, the measures will only apply provided the periodical VAT returns are filed in due time and the agreed payment terms are applied meticulously.