European Court of Justice Rules that Transfer of a Rented Building May qualify for Going Concern


In a recent case, the European Court of Justice (CEUJ) ruled that the sale of a shopping center with lease agreements may be considered as a transfer of a going concern and therefore be transferred outside scope of VAT.

When a taxable person supplies goods or services for consideration, it is typically subject to VAT. However, Article 19 of the VAT Directive permits Member States to exempt the transfer of all or part of a business from VAT. In such cases, the recipient is deemed to be the successor of the transferor for VAT purposes.
The purpose of this VAT regime, known as "TOGC"-relief, is to facilitate the transfer of businesses and prevent undue VAT burden on the recipient. It also avoids situations where significant amounts of VAT would be owed but not always collected by the treasury, such as in the event of bankruptcy.
Although all Member States have implemented this option, differing interpretations of the scope of the TOGC provision and applicable conditions and modalities still exist.

Case C-729/21 (Dyrektor Izby Administracji Skarbowej w Łodzi)

The case concerned a Polish company that purchased a shopping center in Poland. The seller transferred a shopping center together with lease agreements, unexpired construction guarantees, intellectual property agreements, and an electricity connection agreement. However, certain contracts (such as insurance, property and daily management, and agreements for the supply of utilities) were not transferred.
Importantly, the rental of commercial space in the shopping center was the only activity of the seller and became the only activity of the buyer after the transfer.
The Polish tax authorities and the local court held that a transfer of a going concern (TOGC) could be considered and therefore denied the buyer's right to deduct VAT on the sale.

The buyer appealed the decision, which led to the following preliminary questions to the ECJ.

The first question from the referring court is whether Article 19 of the VAT Directive should be interpreted as precluding a national provision that equates the transfer of a business with a non-taxable transfer of a going concern (TOGC) without the acquirer being expressly required to take over the transferor's position.

The CEUJ finds that Article 19 of the VAT Directive does not preclude a national provision that provides that the transfer of a going concern is not subject to VAT when it is not expressly stipulated that the acquirer takes the place of the transferor. The continuation of the person is simply the consequence of the fact that no supply has taken place.

The second question from the referring court is whether the transfer of part of a business can also fall within the scope of Article 19 (TOGC), even if not all material and immaterial assets are transferred. The CEUJ rules that a partial transfer can still fall under the TOGC regime.


A careful and fact-driven analysis is required for the application of the transfer of going concern relief, as an incorrect VAT treatment can result in significant financial consequences. If VAT authorities determine that the going concern relief should have been applied, there could be challenges to input VAT deduction.

The court provides more clarity on when the transfer of leased buildings can be considered a going concern and therefore outside scope of VAT. Although there is no official guidance on the VAT treatment of shopping center transfers in Belgium, authorities have previously contested the going concern relief in the case of project developers (see for example: Judgment of the Court of Appeal in Brussels of 16.12.2015; 2012/AR/2385).