“Transfer of Going Concern” for VAT?

Can the transfer of a building be treated as a “Transfer of Going Concern” for VAT?

News

14-02-2022

A request for a preliminary ruling was submitted to the Court of Justice of the European Union in the Case C-729/21. The question concerns whether the sale of a building, together with other elements as the leasing contracts, is subject to VAT or whether it can qualify as a “Transfer of Going Concern” (TOGC or transfer of a branch of activity). If the latter is the case the transfer will be considered as out of scope and therefore no VAT should be charged on the transfer whereby the transferee will be treated as the successor to the transferor.

Preliminary ruling in Case C-729/21

In the case at hand, the Seller transferred a shopping center together with movable property, the lease agreements for individual premises, documents securing lease agreements, unexpired construction warranties, intellectual property agreements and an agreement regarding power connection. Certain elements were not transferred such as the property management and day-to-day administration agreements, including supervision of the building, the insurance agreement and utilities supply agreements. The lease of retail space in the shopping center was the only activity of the Seller and became the only activity of the buyer after the transfer.

The Polish authorities as well as the Court of first instance considered that the transferred elements were sufficient to enable the transferee to operate an independent economic activity. As a result, they concluded that the transfer should be treated as a TOGC for VAT purposes. The buyer lodged an appeal against the judgment of the Court of first instance and subsequently a preliminary ruling was submitted to the Court of Justice in order to clarify the scope of the TOGC concept for VAT purposes.

Belgian practice

In Belgium, there have been transactions for which individual decisions and rulings have been obtained which confirm the application of the TOGC regime on the transfer of a shopping center (together with the movable property and lease agreements) as well as on the transfer of a building together with a VAT financial lease agreement. VAT Circular n° AFER 10/2007 which provides guidelines on the conditions for a VAT financial lease also refers to the TOGC regime when it concerns the transfer of the leased building.

A published ruling (n°2020.1540) of 1 September 2020 confirms the application of the TOGC regime in the case of a merger between the previous lessor of a VAT financial lease and another company. Another ruling (n°2018.1048) of 18 December 2018 confirms that the transfer of buildings and the lease activity should be considered as a TOGC. In the case at hand, the Seller transferred 4 new buildings as well as the warehouse lease agreements subject to VAT, with all related rights and obligations (including the transfer of customers, commercial receivables, and the financing of the construction of the buildings).

Nevertheless, the application of the TOGC regime should evidently be assessed based on a thorough analysis of the underlying assets whereby the transferred assets should enable the transferee to pursue an independent economic activity. Every transfer should thus be assessed based on its own merits. Since concrete guidelines are still lacking, the future decision of the Court of Justice may therefore shed some more light on what can actually be covered by the TOGC concept.