Global Daily Tax News, ECJ Clarifies VAT Rules In Barter Exchange Dispute, (May 15, 2024)
The European Court of Justice has issued a ruling in a dispute concerning the valuation of consideration paid, in the form of property and cash, for shares in a company.
The case involved P, a company registered for VAT, whose authorized capital is divided into shares. Desiring to increase that capital through in-kind contributions from two companies – W. and B. – P. entered into several contracts for the transfer of properties owned by the companies and a cash contribution in exchange for shares in P.
A dispute arose between national authorities and P. concerning the valuation of the shares for input tax credit purposes.
The contracts stipulated that the consideration for the in-kind contributions to P.'s capital is shares in the latter, valued at their issue price – that price being PLN35,287.19, or approximately EUR 8,123, per share. To determine that price, the parties used, as a basis, the value of the properties contributed, which had been assessed in relation to market prices by a third party.
Instead, Polish tax authorities considered that the taxable amount for VAT purposes of the contributions made by W. and B. for increasing P.'s capital should be calculated by taking into account the nominal value of shares in that company, corresponding to PLN50 or approximately EUR11.50 per share, and not their issue value.
The authority therefore questioned P.'s right to deduct the VAT concerning those contributions and corresponding to the amount exceeding the one calculated on the nominal value of the shares.
In its judgment in P. sp. z o.o. v. Director of the Tax Administration Chamber in Warsaw (Case C-241/23), the Court concluded in favor of the taxpayer, ruling:
"Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax [...] must be interpreted as meaning that the taxable amount of a contribution of property by one company to the capital of a second company in exchange for shares in the latter must be determined in relation to the issue value of those shares where those companies agreed that the consideration for that capital contribution was to be that issue value."