VAT Deduction and Business Succession: When Do Advisory Costs Serve the Company’s Interest?

On 22 August 2025, the District Court of Zeeland-West-Brabant delivered a judgment that will resonate with many family-owned companies in the Netherlands. A private limited company (BV) had incurred substantial advisory costs related to a family business succession and had deducted the VAT charged on those services. The Dutch tax authorities (Belastingdienst) disagreed, arguing that the services were not connected to the company’s business activities but rather to the shareholders’ private interests. Consequently, VAT assessments were imposed for the years  2015–2019, including interest. 

The Court sided with the tax authorities. It ruled that the BV was not the actual recipient of the advisory services and that the costs lacked a direct and immediate link to the company’s taxable activities. This decision follows a consistent trend in Dutch and EU case law, strictly distinguishing between costs related to the enterprise and those incurred for the benefit of shareholders. 

Facts and Background 

The case concerned a company wholly owned by members of the same family. As part of a succession plan, the shareholders engaged several professional advisers – accountants, tax consultants, and legal experts – to prepare and structure the transfer of shares to the next generation. The invoices for these services were issued to the company, which also paid them,  after which the BV deducted the VAT in its periodic returns. 

The tax inspector concluded that the company was not the true beneficiary of the services, since the advisory work primarily concerned the transfer and restructuring of share ownership. The services, in the inspector’s view, served the private interests of the shareholders rather than the company’s operational activities. As a result, two VAT reassessments were issued for the periods 2015–2018 and 2018–2019, together amounting to roughly 40,000 euros in VAT and interest. The company filed objections, maintaining that the advice benefited the continuity of the enterprise, but these were rejected, and the matter proceeded to the District Court. 

Legal Framework 

National Law 

Under Article 15(1)(a) of the Dutch VAT Act 1968 (Wet op de omzetbelasting 1968), an entrepreneur is entitled to deduct input VAT charged on goods and services insofar as they are used for taxable business activities. The law requires that the entrepreneur be the recipient of the  supply and that the goods or services be used for the economic activity of the enterprise. When either of these conditions is not met, the right to deduct VAT is denied. 

EU Law 

At the European level, this same principle is enshrined in Article 168 of the VAT Directive  (2006/112/EC). VAT is deductible only where the goods or services are used for the purposes of the taxable person’s own taxable transactions. The Court of Justice of the European Union (CJEU)  has consistently held that a direct and immediate link must exist between the input transaction and the taxable output. Where such a link is absent, deduction may still be possible if the costs form part of the general expenses of the business and are therefore incorporated into the price of its goods or services. 

This principle has been clarified in several landmark judgments. In Cibo Participations (C-16/00), the Court held that an active holding company may deduct VAT on advisory fees related to the acquisition of subsidiaries, provided those costs relate to its taxable management services.  Conversely, in C&D Foods (C-502/17), the Court denied deduction where the costs were incurred in the context of a share sale intended to repay loans, serving purely shareholder interests rather than the company’s economic activity. The Dutch Supreme Court has consistently followed this reasoning, holding that advisory services which primarily serve shareholder or ownership interests do not give rise to VAT deduction unless the taxpayer can show that the services directly support the company’s taxable operations. 

Application to the Case 

The Zeeland-West-Brabant District Court began by determining who was the true recipient of the advisory services. Although the invoices were formally issued to the BV, the Court focused on the substance of the transactions rather than their form. The services were directed at designing the  succession structure, assessing tax implications, and facilitating the transfer of ownership  between family members. 

In the Court’s view, these services benefited the shareholders personally rather than the company’s operational or commercial activities. The company, though it paid the invoices, was  not the actual recipient within the meaning of the VAT Act. Because the BV was not the recipient,  the first requirement for input tax deduction was already not met. 

Even if the company were to be considered the recipient, the Court continued, the advisory fees  did not qualify as general business expenses. The services were not used for the company’s taxable outputs, nor did they form part of the cost structure of its commercial activities. They  related exclusively to the internal restructuring of share ownership, a matter that existed at the  level of shareholders. The Court explicitly invoked the reasoning of C&D Foods: when the purpose and context of the services are linked to shareholder-level objectives rather than to the business’s economic activity, there is no direct and immediate connection that would justify input VAT deduction. 

Judgment of the Court 

The District Court dismissed the company’s appeal and upheld the VAT assessments and interest imposed by the tax authorities. It concluded that the company had no right to deduct the input  VAT, since it was not the actual recipient of the services and the services were not used for taxable  business purposes. 

The Court’s reasoning follows established EU and national jurisprudence and underscores that the burden of proof rests with the taxpayer. The mere fact that an invoice is addressed to the company is insufficient when the factual circumstances show that the services were performed for the benefit of the shareholders. 

Conclusion and Practical Significance 

The case highlights the strict limits of the VAT deduction system in situations involving business succession, reorganizations, and ownership transfers. Under both Dutch and European law, only services genuinely used for the company’s taxable business may give rise to deduction. Costs incurred to facilitate a change in share ownership, even when paid by the company, do not qualify. 

In practice, this means that family-owned businesses and their advisers must document carefully the business purpose of professional services. The fact that the company pays for advice on share transfers or succession planning does not automatically make the cost deductible for VAT  purposes. What matters is whether the expenditure relates to the company’s taxable economic activity or instead to the private interests of its shareholders. Only when the advisory services demonstrably serve the enterprise – such as when they restructure its operational organization or enable taxable management or support services – can VAT deduction be justified. When the objective lies in ownership restructuring, inheritance, or private estate planning, the right to  deduct VAT must be denied. 

The ruling in ECLI:NL:RBZWB:2025:5701 reaffirms that VAT deduction depends on the economic use of goods and services within the scope of a company’s taxable activity. The Court’s reasoning is fully consistent with the CJEU’s case law, which emphasizes that the purpose, content, and beneficiary of services determine the right to deduction, not merely the invoice or payment structure. 

For tax advisers and family-owned companies, the message is clear. Before starting a succession  or restructuring project, it is essential to perform a thorough VAT analysis of the expected advisory  costs. The true beneficiary must be identified, the business rationale properly documented, and the invoicing aligned with the economic reality. Failure to do so may result in denied deductions,  costly assessments, and unnecessary disputes. 

The judgment demonstrates that VAT neutrality protects only those acting as taxable persons within their economic activity. Once costs enter the sphere of ownership or private wealth, the link with the enterprise is broken, and the right to deduct VAT disappears.

Source: Dutch National Service Center for the Judiciary - ECLI:NL:RBZWB:2025:5701