BB/21/04 VAT—VAT position of share issues and partnership contributions following the ECJ decision in KapHag Renditefonds
Business Brief, Issue 21. 10 August 2004
This Business Brief clarifies Customs' position on two issues arising from the decision of the European Court of Justice in the German case of KapHag Renditefonds v Finanzamt Charlottenburg (Case C-442/01) (Part V11)—
(1) Whether the issue of shares constitutes a supply for VAT purposes; and
(2) The VAT position of contributions to partnerships.
The case of KapHag concerned the admission of a new partner into a partnership on payment of a capital contribution. The European Court held that no supply was being made by either the individual partners or the partnership to the incoming partner in return for the capital contribution.
1. Whether the issue of shares constitutes a supply
The KapHag decision has been cited as authority for the view that an issue of shares by a company is similarly not a supply for VAT purposes. It is claimed that an issue of shares therefore falls outside the terms of of VATA 1994 Sch 9 Group 5 Item 6. That Item exempts from VAT—
“The issue, transfer or receipt of, or any dealing with, any security or secondary security…”
It is Customs' view that the formation or variation of a partnership arrangement is wholly distinguishable from the position where a company issues shares in return for consideration. KapHag was concerned solely with the issues surrounding a partnership. The VAT treatment of share issues has been considered by the Court of Appeal