From a VAT point of view, the consideration for the in-kind contribution is the issuance value of the new shares
C-241/23. – P. sp. z o.o. | In the case of equity received in exchange for contributions, the VAT perspective value is the issuance value, which represents the value determined by the parties for the assets contributed.
In Case C-241/23, the plaintiff conducted a capital increase and entered into contribution agreements with two investors who transferred real estate and provided monetary contributions in exchange for newly issued shares. The plaintiff company indicated the issuance value of the shares – and not their much lower nominal value – as the taxable base in the VAT return.
The Polish tax authority and the lower administrative court considered that the nominal value of the shares constitutes the taxable base. The preliminary ruling procedure was initiated by the Polish Supreme Administrative Court. The European Court referred to the principle that the VAT base is the consideration received or to be received by the beneficiary for the product or service. This should be a value subjectively determined, corresponding to the value agreed upon by the parties, or in the absence of agreement, the value that another party would be willing to pay for the same product or service. This value is the issuance value of the shares, not the nominal value that determines ownership rights.
The European Court also affirmed that the principle of the arm’s length price in determining the VAT base applies only in the limited scope defined in the VAT Directive (when one of the parties is not fully entitled to the deduction of input VAT), therefore, solely because the contributor is not an independent party, the arm’s length price of the shares cannot be relevant in determining the VAT base.
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