The Court of Justice of the European Union (“CJEU”) has rendered judgment in the DTZ Zadelhoff case (case no. C-259/11). The judgment deals with the VAT treatment of intermediary services provided by DTZ in respect of the sale of shares in companies directly or indirectly holding real estate (“real estate entities”). According to the CJEU, these intermediary services are a VAT-exempt service. In this memorandum we discuss the most important facts of the case, the judgment, and its practical consequences.
DTZ provides real estate services. In addition to providing intermediary services in respect of the real estate itself, DTZ also acts as an intermediary for the sale of shares in real estate entities. In the case at hand, DTZ received two sets of instructions from the vendors:
· Find a buyer/buyers for the shares in the real estate entity. The sale of the real estate held by the real estate entity was explicitly excluded.
· Find a buyer/buyers for the real estate or for the shares in the real estate entity.
In both cases, the buyers acquired the shares in the real estate entity in question.
The dispute that arose between the Dutch Revenue and DTZ concerned how the services provided by DTZ should be qualified for VAT purposes: as intermediary real estate services (subject to VAT), or intermediary services in respect of shares in a real estate entity (VAT-exempt).
According to the CJEU judgment, intermediary services provided in respect of the sale of shares are a VAT-exempt service. The CJEU concluded that although it was not yet clear at the time the instructions were given whether the ownership of the real estate itself or the shares in the real estate entity were to be transferred, this fact is not relevant. What is relevant is the objective nature of the service that ultimately took place. According to the CJEU, a service in respect of shares should be treated as such and therefore be regarded as a VAT-exempt service.
Many shareholders in real estate entities are not entitled, or only have a limited entitlement, to deduct VAT. If an intermediary has to charge VAT to a shareholder, this VAT will be an additional expense. Now that intermediary services in respect of the sale of shares is VAT-exempt, shareholders will not be faced with VAT that is fully or partially non-deductible. However, the exemption does mean that the service provider’s VAT deduction entitlement will be limited.