VAT consideration and shares issues

The CJEU has held that the value of consideration provided in the form of an issue of shares in return for a contribution of property is, in principle, the issue value and not the nominal value of the shares: P. sp. z o.o. v Dyrektor Izby Administracji Skarbowej w Warszawie (Case C-241/23).

Background

P, a Polish company, received contributions of buildings and properties from two other companies in return for an issue of shares in P. The contracts concerned stated that the consideration for the contributions of properties was to consist of the issue of shares valued at their issue price (ie their value at time of issue). In order to determine that price, the parties relied on the market value of the properties transferred, as assessed by a third party.

P sought to recover input VAT on the supply to it of the properties, based on the issue value of the shares it provided as consideration. The Polish tax authorities rejected the claim, taking the view that the taxable amount for VAT purposes of the contribution of the properties had to be calculated by reference to the nominal value of P's shares. This amounted to 50 PLN per share, rather than 35,287 PLN per share which was the issue value. P appealed that assessment and the matter was referred to the CJEU.

Decision of the CJEU

The CJEU has confirmed that the consideration received for a supply is based on the subjective value actually received. In the absence of a sum of money agreed between the parties, this value is the value which the recipient of the supply attributes to the goods obtained. In this case, the subjective value of the consideration received for the contributions of property corresponded to the monetary value which the contributors conferred on P's shares provided as consideration. It was clear from the contracts that the parties based the transaction on the issue value of the shares and not the nominal value of the shares.

The CJEU confirmed that this valuation was not called into question by the fact that the issue value of the shares was determined after an objective third party assessment of the market value of the properties. This did not indicate that the parties had used an objective valuation rather than a subjective valuation. [This is one of the oddest arguments I've ever seen put to the CJEU!]

Therefore, in the absence of any abuse which might indicate that the value did not conform to economic and commercial reality or the application of Article 80 of the VAT Directive (applying to related party transactions), the correct basis of the valuation of the consideration provided by P (for the purposes of determining its input VAT entitlement) was the subjective issue value of the shares allotted by it to the entities transferring properties to it.

Comment

The decision, as one would expect, confirms that, when determining the valuation of supplies in a barter situation, it is the subjective valuation put on the transactions by the parties concerned that matters for VAT purposes. And where shares are issued by a company as consideration, it is the actual value of those shares rather than their nominal value, that will count.

It seems likely in this case that the Polish tax authorities took exception to the argument that the consideration provided in shares was VAT inclusive and entitled the issuer to a large input VAT claim. (It is not clear if the companies transferring the properties had accounted for VAT on that basis.)