7.7.1 Case 1

A holding company is holding the shares of a group of companies. The group qualifies as VAT group for VAT purposes. The group performs only taxable transactions (e.g. a car manufacturer). The group decides to sell one of its operations which is concentrated in one of the companies. All the shares (100%) in this company are sold.

The costs attributable to the sale of the shares in the company qualify as ‘general costs’ which have as such a link with the business as a whole, meaning that the VAT on these costs is deductible according to the pro rata applicable to (this part of) the business.

The disposal of the shares is treated as an exempt supply. The input VAT attributable to this supply is not deductible unless the shares are supplied to a recipient living or established outside the EU.1

According to the tax authorities, the sale of shares is an exempt financial transaction2, but an option to tax is available if the purchaser is in business and resident in Germany (i.e. the transaction must be a domestic one).3 If the purchaser is established or resident in another EU country, an option to tax is not possible; the input VAT attributable to the transaction is not deductible. If the purchaser is resident outside the EU, the transaction is outside the scope of Ger-man VAT; the input VAT attributable to the transaction is deductible.

There is no VAT grouping allowed in France; we assume that the sale is carried out by a holding company. In principle, the sale of shares is VAT exempt and does not allow the VAT recovery unless the purchaser is established outside the EU.4 The tax authorities follow that position.5 The position is mitigated in certain court cases: depending on the circumstances, the courts seem to recognize a link between the sale of shares and the business activity6, and allow VAT recovery to some extent.