VAT treatment of the transfer of shares in a subsidiary

In binding ruling V2109-22, the Spanish Tax Authorities have established that the transfer of shares in a holding company and, indirectly, of all shares in five fully operational commercial entities, including the relevant human and material resources of a business unit, is not subject to VAT.

This ruling is based on the judgment of the Court of justice of the EU (C-651/11), which does not exclude the possibility that the transfer of a 100% shareholding may, under certain circumstances, be assimilated to a VAT free transfer of a Going Concern, provided that such a transfer results in the total or partial transfer of the assets of the undertakings in question.

Key takeaway

This ruling may have an impact on the recoverability of input VAT. In particular, when calculating the proportion of recoverable VAT on general expenses (the pro-rata rule) given that transactions which are outside the scope of VAT are not included in this calculation. Spanish taxpayers (e.g. holding companies) may want to analyse how this ruling can impact their past and future VAT recovery position, as in the case there is no TOGC, the transfer of shares would be exempt.