New VAT-Decree on negotiation in securities transactions

What does negotiation entail?

The Court of Justice of the European Union has determined that negotiation takes place when a service provider actively facilitates two parties in reaching a purchase or sale agreement (CJEU, 5 July 2012, C-259/11, DTZ Zadelhoff). The intermediary facilitates the agreement but is not a party to it. The Dutch State Secretary adds that a success-based fee does not make the intermediary a contractual party and therefore does not preclude application of the exemption. In fact, a success-based or no-cure-no-pay fee may indicate the presence of negotiation.

The decisive factor for whether the activities are regarded as negotiation, is the objective nature of the substantive activities performed. According to the Dutch State Secretary of Finance, the act of seeking a counterparty for the purchase or sale of shares in return for a fee qualifies as negotiation, even if the intended transaction does not materialize. In contrast, activities such as advertising, providing information, or offering financial advice are expressly excluded from the definition of negotiation. The same applies to other support services “that do not result in a purchase or sale agreement”.

Safe harbor: VAT exemption on negotiation always applies

The acquisition or transfer of a business may take place through a share transaction. Services procured in such a process may qualify as VAT-exempt negotiation.

According to the Dutch State Secretary, the process of acquiring or selling shares generally comprises the following phases:

1. Orientation and introduction phase;
2. Information gathering and preparation phase;
3. Negotiation phase;
4. Contract conclusion.

Service providers whose activities cover all these phases perform VAT-exempt negotiation. The Dutch State Secretary thus introduces a safe harbor for such comprehensive services, ensuring that the exemption applies.

If not all phases are covered, the VAT-qualification of the service at hand (negotiation or not) depends on the specific facts and circumstances.

Negotiation is, moreover, no longer possible once the share purchase agreement has been concluded, as the buyer and seller then already have found each other.

Services not qualifying as VAT-exempt negotiation

The Dutch State Secretary also lists a number of services that explicitly do not qualify as negotiation and are therefore subject to VAT. These typically involve separately provided material or technical services, such as valuation advice or preparing a business for sale, strategic advice on the acquisition, legal services such as drafting agreements, the mere provision of an information memorandum, or the supply of software and hardware that can be used to automatically match supply and demand for shares.

Practical relevance

This decree provides clarity on the scope of the VAT-exemption for negotiating of shares in the future. It does not have retroactive effect. However, under the new policy, existing arrangements with the tax authorities – or existing practices - may be challenged. We therefore recommend to assess this new policy against your own practical situation.