Facts and circumstances

AB SKF is the parent company of a group of industrial companies that are active in various countries. AB SKF is actively involved in the management of these subsidiaries and renders services to them including management, administration and marketing  services for which it receives remuneration. In view of the restructuring of the group, AB SKF disposed its shares in a 100 percent owned subsidiary as well as in a minority shareholding, which once was a 100 percent owned subsidiary. The proceeds from these disposals  are used to fund activities of the remaining group. In order to carry out the disposals AB SKF will incur transaction costs (e.g. valuation of the shares, assistance in negotiations and drawing up contractual documents) for which invoices have been received including VAT .
 
Opinion of the AG

According to the AG, and based on previous rulings of the ECJ for VAT to be recoverable it is, as a general rule, necessary for the costs on which the input VAT is due to have a direct and immediate link with one or more (output) transactions subject to VAT that give a right to reclaim VAT.
Since AB SKF is actively involved in the management of the subsidiaries being disposed, the AG concludes that the disposal of the shares also takes place within the scope of VAT. According to the AG and contrary to the current EU practice the supply of shares should be considered a VAT exempt transaction (i.e. not giving right to reclaim input VAT). In the case at hand the costs incurred are directly linked to the supply of the shares and therefore the input VAT on the transaction costs is not recoverable and thus present a true cost.
 
Dutch case law and secondary law (Decree of the Ministry of Finance)

Based on case law of the Dutch Supreme court, the Dutch Ministry of Finance issued a Decree in 2004., in which it states that in case of a disposal of a majority shareholding that is actively managed in combination with the rendering of VAT taxable services (e.g. by an active holding company), the input VAT on the related transaction costs is recoverable in accordance with the overall VAT recovery ratio of said company.
 
In conclusion, the opinion of the AG is in contradiction to the current practice in the Netherlands. If the ECJ decideds in line with the advice of the AG it is likely that the 2004 Dutch Decree will (at least partially) be withdrawn. In absence of retrospective effect of such withdrawal, completed transactions up to the date of withdrawal are not expected to be adversely impacted. For future transactions (and currently incompleted transactions) it is likely however that VAT leakage (19%) on disposal costs will occur.