Transfer of a Going Concern. Valuation regarding the possibility that the assets transferred independently to develop an economic activity


Decision of the Spanish Economic Administrative Court, dated January 22, 2015.

The claiming entity acquired a building as a hotel and paid the corresponding VAT. However Tax Inspectors found that such Transfer of a Going Concern (here in after TOGC) is an economic unit capable of independent operation, so this transaction is not subject to VAT under Article 7.1 of the Spanish VAT Law, thus denying them the right to deduct these amounts of VAT.

The Court, relying on case law of the ECJ (Case Zita Modes, SKF, and Schriever), extracted two important consequences for the present case: first, that the purpose of this rule for not subject to VAT the Transfer of a Going Concern is simply to facilitate operations aimed at the “transfer of business” or, that of “a set of tangible elements and, if , incorporeal that part of the business or business assets of the taxpayer, constitute an independent economic unit capable of developing a business or professional activity on their own. “The second conclusion is that the purpose of this rule are the “companies” (total universality) or “part of business” (partial universality), i.e, the set of corporeal and incorporeal elements that together are capable of developing an independent economic activity.

Thus, the mere transmission of immoveable goods, in principle does not seem to be anything but a simple transfer of assets, not likely to constitute a set of assets capable of carrying on an independent activity, and therefore subject to VAT.

There is not any evidence in the record that has occurred transmission of personal and human resources. Moreover, the claiming entity emphasizes that the contracts include stipulations that are not being transferred goodwill, inventories, management systems or legal relationships with staff.

So we cannot consider that the transferred assets are sufficient to permit the continuation of an independent economic activity within the meaning of the appointed jurisprudence as in case of a TOGC.

The Court states that no VAT liability in the case of partial transfer of business assets according to the wording of Article 7.1 of the Spanish VAT Law in force in 2009, focuses on the idea that partial transfer must include all the elements necessary for to develop an independent economic activity or separately. This concept of autonomy cannot be identified only with the adequacy or financial autonomy (something that is highlighting the claimant), but it does mean that taken together the elements subject to partial transmission, should these be sufficient to develop an economic activity themselves, outside the business / activity that were subject (although the object of both activities might be the same) without relying on other elements that were not transmitted. It is ultimately the transferred assets constitute a heritage that, in itself, reflects the concept of enterprise, i.e. that it is an organized set of assets capable of intervening in the market for goods or services.

We are, therefore, at the mere transfer of assets without providing a business organization, the necessary elements to perform an economic activity capable of operating autonomously (regardless of the ability to assign or lease any active element that is transmitted an entrepreneur or professional), so the Court considers that will not apply the assumption that no VAT liability under Article 7.1 of the Spanish VAT Law.

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TEAC 22 Jan 2015

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