Classic: the DTZ Zadelhoff judgment on intermediation in share transactions

Intermediation in the purchase or sale of a company through a share transaction is exempt from VAT. The classic DTZ Zadelhoff judgment shows that merchant and investment bankers and corporate finance and M&A advisers can also supply exempt intermediary services.

For a long time it was assumed in the Netherlands, on the basis of the 2001 Merchant Bankers judgment, that such services were subject to VAT. DTZ Zadelhoff corrected that picture.

The DTZ Zadelhoff judgment

The judgment was handed down on 5 July 2012. A property agency and advisory firm was instructed to find prospective buyers for two property complexes owned by its client established abroad. The complexes were transferred by transferring the shares in the companies that owned them. The asking price for those shares depended almost entirely on the sale value of the complexes.

DTZ Zadelhoff did not charge VAT. It took the view that its services were exempt because they concerned a transaction in shares, or alternatively that they were not taxable in the Netherlands because the client was not established there. The inspector raised an additional assessment, taking the view that the exemption for transactions in shares did not apply.

Via the District Court of Haarlem and the Court of Appeal in Amsterdam, the case reached the Supreme Court, which referred the following question, among others, to the Court of Justice of the EU:

Does the service supplied by DTZ Zadelhoff, directed at the transfer of shares but in essence concerning the transfer of immovable property, fall within the VAT exemption for transactions in shares?

The Court of Justice held that the transactions do fall within the exemption. It applies to transactions such as those of DTZ Zadelhoff, which are directed at and have led to the transfer of shares, even where they in essence concern immovable property and its indirect transfer. What matters is the objective character of the transaction, and the ultimate transaction was a transfer of shares.

The activities of DTZ Zadelhoff also met the concept of intermediation. Intermediation is an activity aimed at doing what is necessary for two parties to enter into a contract, without the intermediary having an interest of its own in the content of that contract. Finding a counterparty is an essential part of it.

Why this matters in practice

The judgment confirms that the objective character of the transaction is decisive, not the intention of the parties. It also shows that services by merchant and investment bankers and by corporate finance and M&A advisers can be VAT-exempt intermediary services.

The Dutch decree on intermediation in securities transactions sets out the scope of intermediation in shares. Services aimed at bringing about the purchase or sale of a business or interest through a share transaction qualify as exempt intermediation. Purely material or technical services, such as legal work or valuation advice, do not bring the agreement about and therefore fall outside the exemption.