VAT treatment of transfer of going concern
Binding tax ruling V0168-16 issued by the Spanish General Tax Directorate on January 19, 2016.
The transaction analysed in this ruling issued by the Spanish General Tax Directorate is the acquisition by a company dedicated to the mechanization of engines out of use, of practically all of the business assets of another company (with the exception of the premises in which the activity took place) whose activity was the repair and cleaning of industrial radiators and agricultural vehicles and cars.
The goods in the business assets which were transmitted were, on one hand, material goods (appliances, tools, inventories) and another, intangible (clients, suppliers, as well as a training by the transferor to the staff of the transferee in the activity that the first carried out).
In this sense, article 7.1st of the Spanish VAT Law establishes:
“Shall not be subject to VAT the transmission of a set of material elements and, where appropriate, incorporeal, forming part of the business or professional assets of the taxable person, constitute or are likely to constitute an autonomous economic unit in the transferor, able to develop a business or professional activity on their own…”
To determine if this transaction is not subject to VAT it must be analysed whether the property in question is required for the development of an economic activity, together with the rest of the elements transmitted, according to the nature of the activity and the characteristics of the property.
In this regard, in so far as the premises in which the transferor exercised the activity of cleaning and repair of all type of radiators are not necessary for the exercise of the same since such activity is of such nature that not required of some facilities that meets with conditions or features special, the fact that it is not transmitted the premises along with the rest of material or immaterial elements must not prevent the application of non-subject as referred to in article 7.1st of the Spanish VAT Law.
Therefore, concludes the Spanish General Tax Directorate that the transaction above described will not be subject to VAT.