Economic disposal

The applicant was the Swedish parent of various subsidiary companies. It invoiced administrative services supplied to the subsidiaries on which it paid VAT. It sold a 100% subsidiary and used the proceeds to fund other activities which would be subject to VAT.

The company applied to the tax authority for a preliminary decision on its right to deduct VAT paid on those services. It was agreed that the company could deduct the VAT so the tax authority appealed and the matter was referred to the European Court of Justice.

The court ruled that a disposal of shares in these circumstances was exempt from VAT. Where the parent had supplied taxable services to the subsidiary the disposal would be an economic activity.

However where the disposal of shares was equivalent to the transfer of a totality of assets within the meaning...