Sale of leased property as disposal of a business as a going concern

26. 6. 2023

The European Court of Justice published its judgment in Case C - 729/21, where a construction company built a shopping center, signed lease agreements and entered into other necessary contracts, such as a property management agreement. Subsequently, the construction company sold the shopping center. The sale included not only the land and building but also the tangible and intangible assets as well as the relevant lease agreements. The property management agreement and insurance contract were not part of the sale, so the buyer entered into a new property management agreement and insurance contract to continue operating the shopping center.

Both parties believed that the transfer was subject to VAT and the buyer therefore claimed input tax deduction. The tax authority rejected the input tax deduction on the grounds that the transaction was sale of a business as a going concern and did not constitute a supply of goods or provision of services for VAT purposes.

In its judgment, the European Court of Justice agreed with the tax administration’s position. Transfers are therefore sales of a business as a going concern even if not all the tangible and intangible assets of the business are transferred, as long as the transferred assets are sufficient for the business as a going concern to operate as an economically independent unit. Furthermore, it is not necessary for the transferee to be considered the legal successor of the transferor.

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