BB/30/04 VAT and partnership “shares”
Business Brief, Issue 30. 22 November 2004
Business Brief 21/04 (BB/21/04, Division V16.3) clarified Customs' policy on share issues and partnership contributions following the European Court of Justice (ECJ) decision in KapHag Renditefonds (C-442/01) (Part V11). That Business Brief did not deal with the VAT position of transfers of partnership interests (“shares”). This Business Brief explains the VAT treatment of transactions involving the transfer of a partner's “share”.
Is the disposal of a “share” in a partnership a supply?
KapHag established that a partnership entity or the existing partners are making no supply when a new partner is admitted in return for making a capital contribution. The question arises whether the subsequent disposal by the partner of that “share” in the partnership is a supply for VAT purposes. It is important to bear in mind that this “share” is distinct from the assets that were contributed by the partner when they joined the partnership. Therefore, even though the selling price of the “share” may be determined by the value of those assets, they are not the subject of the later sale, which has its own liability for VAT purposes.
Although the ECJ has not considered this type of transaction with respect to partnership “shares”, there have been a number of cases where it has given a decision in respect of transactions involving shares in companies. The cases of Polysar (C-60/90) (Part V11), Harnas and Helm (C-C-80/95) (Part V11), Wellcome Trust (C-155/94) (Part V11) and Regie Dauphinoise (C-306/94) (Part V11)