General Court clarifies the VAT consequences of business transfers
11/09/26
In determining the VAT treatment of business transfers, the transfer of a totality of assets is an important concept. Under the so-called "no-supply rule" no VAT is generally due.
The General Court of the European Union (the General Court) recently released three judgments with relevance to the scope of this no-supply rule: A&P Deco (T-397/25), Peckeger (T-413/25) and Szytelbiecka (T-366/25).
What this means for your organisation
The judgments are relevant to every business transfer or contribution in kind, in particular to transactions in which real estate plays a role and to business successions involving several transferees. The main findings of the three judgments are set out below:
- A contribution in kind can give rise to a (deemed) supply that is subject to VAT. If the transaction falls outside the no-supply rule, a contribution can therefore trigger a VAT charge.
- The General Court appears to suggest that application of the no-supply rule requires the transferee to have a right of deduction. This deserves attention where transferees have a limited right of deduction.
- The no-supply rule does not apply where a transferee acquires only an undivided share in the undertaking, not even where the transferees subsequently continue the activity together.
- Member States that have implemented the no-supply rule may not restrict it to transactions in specific sectors. The permitted grounds for restriction are exhaustive and the no-supply rule has direct effect.
- Continuing services such as the letting of immovable property fall outside the scope of the no-supply rule but can lead to an adjustment of input VAT for the transferor.
Would you like to know what these judgments mean for your situation? Please contact your PwC adviser.
Business transfers and VAT
All three cases concern the no-supply rule of art. 19 EU VAT Directive. In the event of a transfer of a totality of assets or part thereof, whether for consideration, without consideration or as a contribution to a company, Member States may consider that no supply of goods has taken place and that the transferee is to be treated as the successor to the transferor. Art. 29 EU VAT Directive provides that art. 19 applies in like manner to the supply of services. No VAT is then due.
The no-supply rule makes business transfers simpler and prevents the resources of the transferee from being overburdened by a VAT charge that would in any event ultimately be recovered through deduction of input VAT. Where a Member State has implemented art. 19 EU VAT Directive, it must apply the no-supply rule to every transfer of a totality of assets or part thereof. Restrictions are permitted only on the grounds of preventing distortion of competition where the transferee is not wholly liable to tax and of preventing tax evasion or avoidance. That list is exhaustive.
Judgment A&P Deco (T-397/25): adjustment obligation for the landlord
Background
A&P Deco carried on business as a garden centre in business premises owned by it, had those buildings constructed in 2004 and 2005, carried out renovation works from 2008 to 2011 and deducted in full the VAT charged on those costs. In 2013 it transferred its business as a transfer of a totality of assets and on the same day let the buildings to the transferee, so that the transferee could continue the garden centre business in the same buildings. Following an inspection, the Belgian tax authorities reclaimed part of the deducted VAT.
Judgment of the General Court
The General Court follows that line. The move from taxable use to exempt letting alters the elements used to determine the right of deduction, so the transferor-landlord must adjust the deducted VAT proportionately. The decisive point is the classification of the letting right. A letting right can form part of the totality of assets as an intangible element, but it must then already have existed before the transfer and have been transferred. Where the transferor enters into a new commercial lease on the transfer, a new right limited in time is created that falls outside the transfer. Shifting the adjustment liability to the tenant is therefore not possible, because the tenant would be paying tax on a transaction in which it had no involvement or for which it was not treated as successor.
Judgment Peckeger (T-413/25): contribution of let immovable property
Background
Peckeger managed an individually owned Austrian undertaking with several buildings that were let subject to VAT and had deducted the input VAT in full. In 2007 Peckeger contributed those properties to R GmbH, the company of which he was the sole shareholder and manager, on the basis of a contribution-in-kind contract and without receiving new shares. The Austrian tax authority regarded the transaction as an exchange of immovable property in return for shares, subjected the contribution to VAT and adjusted the deduction. Under national law the no-supply rule did not apply, because the income came from letting and leasing and not from a "commercial activity".
Judgment of the General Court
The General Court rejects the Austrian restriction. National legislation restricting the no-supply rule to certain kinds of income cannot be based on one of the permitted grounds for restriction in art. 19 EU VAT Directive and is contrary to EU law. The no-supply rule is formulated with sufficient precision and is unconditional, so that it has direct effect and a taxable person may rely on it directly. The Austrian rules do date from before accession in 1995, but they are not covered by a standstill clause.
It is notable that the General Court gives priority to the question referred on the transfer of a totality of assets over the classification as a supply or an application of business assets. Where the transaction falls outside the no-supply rule, there is no supply of goods for consideration, because an actual consideration in return is lacking and no new shares were issued. A charge to VAT may nevertheless follow through an application of business assets and their disposal free of charge, or for purposes other than those of the business, which is treated as a supply of goods for consideration. This appears to imply that no question of such an application arises where the Member State has correctly implemented art. 19 EU VAT Directive and the transaction falls within it, because there is then no supply. The General Court does not say so in as many words.
Finally, the judgment raises the question whether the transferee's entitlement to deduct is a condition for applying the no-supply rule. That consideration looks more like a justification of the purpose and scope of the no-supply rule than an independent condition. Even so, this point deserves attention in transfers to transferees with a limited right of deduction.
Judgment Szytelbiecka (T-366/25): transfer to several transferees
Background
The Polish entrepreneur Szytelbiecka intended to donate her entire undertaking to her two daughters, who would each receive a half share, after which she would cease to carry on her economic activities immediately. The daughters already ran a general partnership and planned to incorporate the donated undertaking into it and to continue its activities in a substantially unchanged form. According to the Polish tax authority, each daughter acquired only a shareholding in the various components of the undertaking and not the undertaking itself. Such shared ownership does not allow for the independent pursuit of economic activities. In addition, the activity would be carried on not by the transferees but by the general partnership.
Judgment of the General Court
The General Court first assesses whether the donation and the later contribution form a single, indivisible supply. That is not the case, because these are distinct and independent transactions, namely the donation of a half share to each daughter and the subsequent contribution of each share to the general partnership. As a co-owner, each daughter is a separate legal entity who may dispose of her share without the other's consent and may decide individually whether or not to contribute it to the general partnership. Moreover, the contribution is not conditional upon the donation and will take place at a later date.
The General Court then examines the conditions for the no-supply rule. The elements transferred must together be sufficient to allow an independent economic activity to be carried on and the transferee must intend to operate the business transferred. The first condition is not satisfied. A half share does not make it possible to carry on an independent economic activity, because it represents only half of the undertaking and does not on its own provide the means to continue the activity as a whole. The fact that the daughters intended to contribute their shares to a company that does continue the activity makes no difference, because the General Court assesses each transfer separately. The General Court does not reach the second condition, namely the intention. The no-supply rule does not apply.
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