In this case (C-259/11, DTZ Zadelhoff), the Court of Justice of the European Union (CJEU) examined the VAT treatment of intermediary services by a real estate agent that relate to the transfer of shares in real estate entities. In this regard, the CJEU decided that such services are VAT-exempt.

The transaction concerned the sale of shares in companies that solely hold immovable property, so-called real estate entities. DTZ Zadelhoff, a real estate agent, valuated immovable property, searched for an appropriate buyer and assisted in negotiating the sales price. At the time that instructions were given to DTZ Zadelhoff, it was unclear whether the ownership of the immovable property itself or the shares that represent the underlying immovable property were to be sold. For these services, DTZ Zadelhoff did not charge VAT as it held the view that such services merely consisted of negotiating in shares and therefore is VAT-exempt. The Dutch tax authorities, on the contrary, took the view that the service provided by DTZ Zadelhoff related to the transfer of immovable property and could therefore not share the exemption.

Under the VAT Directive, transactions (including negotiation) in shares are VAT-exempt. The VAT Directive provides for en exception to this exemption for documents establishing title to goods, which EU member states can choose to implement. The Netherlands did not implement this exception in its national VAT legislation. Intermediary real estate services, on the contrary, are VATable.

The CJEU ruled that the services provided by DTZ Zadelhoff qualify as VAT-exempt intermediary services in shares. The circumstance that at the time instructions were given to DTZ Zadelhoff, it was still unclear whether the ownership of the immovable property itself or the shares that represent the underlying immovable property were to be sold, does not alter the applicability of the VAT exemption. The same applies to the fact that the transaction envisaged the sale of the immovable property that the shares represented. What was decisive, according to the CJEU, is the objective nature of the service that ultimately took place. This service related to the sale of shares, rather than immovable property.

This decision is good news for investors/shareholders in real estate entities, as many are not entitled to deduct input VAT. Any VAT charged by a real estate agent will constitute a cost. Now that the CJEU decided that intermediary services in share transactions are VAT-exempt, such investors/shareholders will not be confronted with non-deductible VAT. A real estate agent that provides such VAT-exempt services, however, will now be confronted with partially non-deductible VAT.