VAT deductibility of costs related to sales of shares

By Sophie Dorin


In a "Nexity SA" decision handed down on 4 February 2015, the Administrative Supreme Court added to its case-law regarding VAT deductibility related to sales of shares.

Indeed, in two decisions released on 23 December 2010 (Pfizer Holding France n0. 307698 and Michel Thierry ruling no. 324181), the Administrative Supreme Court made a distinction between two types of expenses related to sale of shares:

  • "Preparatory" costs which are deemed to form part of the taxpayer’s general costs for which the VAT will be deductible.

When the sale of shares is not effective, VAT is always deductible. In the event of an effective sale, the tax authorities can challenge the presumption of deductibility of VAT provided that they establish either that the costs were included in the sale price of the shares, or that the product of the sale was distributed and thus becomes property.

  • •Costs "inherent" to the sale are presumed to be sales costs for which the VAT is not deductible.
    The taxpayer may, however, prove, by all evidence it has available, that the costs in question were not included in the sale price of the shares.

In the ruling of 4 February 2015, the Administrative Supreme Court detailed the information required by the tax authorities in order to overturn the presumption of VAT deductibility pertaining to preparatory costs.
In this case, a holding company undertook costs with regard to merchant banks and law firms concerning sales of unlisted shares held in one of its subsidiaries.

The holding considered that the costs were preparatory ones giving the right to deduction. Two types of argument were put forward by the holding:

  • The sale price of the shares had been decided before counsel’s fee bills were issued
  • The price was negotiated from the sole economic value of the business sold

The tax authorities questioned said deduction, alleging that the costs were incorporated in the sale price and basing said allegation on two pieces of information:

  • Distribution between the transferor and the transferee was not determined contractually;
  • The holding had produced no evidence regarding calculation of the share sale price, which documentation only it was able to produce.

The Administrative Supreme Court considered that the appeal court, by seeking to find whether the holding had produced before it sufficient probative evidence to fight the tax authorities' allegation, had in the same way ruled that the authorities’ information was sufficient to overturn the presumption of deductibility attached to preparatory costs. The Administrative Supreme Court ruled that, in so doing, the court made no error in law.

The Administrative Supreme Court stated also that the court, in ruling the holding’s information to be insufficiently evidential, it not having produced any information which only it could hold, gave a sovereign ruling which was not out of line.

In this ruling, the Administrative Supreme Court demonstrated the limit of the assumptions introduced in its "Michel Thierry" and "Pfizer" decisions on preparatory costs. Proof of non-deductibility of VAT is the responsibility of the administration but it is deemed to have been made if said proof depends on proof held by the company, which fails to so produce it.


CE 4/02/2015, n°370525 Nexity