Transfers of a Totality of Assets for VAT Purposes: Peckeger Limits National Restrictions on the No-Supply Rule

The General Court of the European Union has delivered its judgment in Case T-413/25, Peckeger, concerning the scope of Article 19 of Directive 2006/112/EC (the VAT Directive), which allows Member States to treat the transfer of a totality of assets or part thereof as not constituting a supply of goods for VAT purposes.

The judgment contains two particularly significant findings. First, Member States that have opted to apply this regime may not restrict it to specific categories of activities, assets or types of income, except on the grounds expressly provided for in Article 19 itself. Second, the General Court recognises the direct effect of the first paragraph of Article 19 where a Member State has exercised that option but has subsequently restricted its scope in a manner contrary to EU law.

Background to the case

The dispute arose in Austria. A sole trader transferred several properties to a limited liability company of which he was the sole shareholder and managing director. The properties had previously been let under transactions subject to VAT and had given rise to a right to deduct input VAT.

The contribution was made without the issue of additional shares or any other effective consideration, and the recipient company subsequently continued the VAT-taxable letting activity.

Austrian legislation allowed the no-supply rule to apply to certain contributions made in the context of business reorganisations. However, its application was conditional upon the transferred assets generating certain categories of income for income tax purposes. Income derived from the letting and leasing of property fell outside those categories.

The question was therefore whether a restriction of this nature was compatible with Article 19 of the VAT Directive.

Article 19 does not allow additional national restrictions

Article 19 allows Member States to consider that the transfer, whether for consideration, free of charge or by way of contribution to a company, of a totality of assets or part thereof does not constitute a supply of goods and that the recipient is to be treated as the successor to the transferor.

The General Court recalls that adoption of this rule is initially optional. However, once a Member State has exercised that option, it must apply the no-supply rule to transactions falling objectively within the scope of Article 19.

The possibility of restricting its application is defined by the second paragraph of Article 19, which permits Member States to adopt measures to prevent certain distortions of competition and to prevent tax evasion or avoidance. According to the General Court, those grounds are exhaustive.

A Member State may therefore not reserve the regime to particular types of businesses, assets or activities by relying, for example, on categories of income established under its domestic direct-tax legislation.

The judgment thus reinforces the status of the transfer of a totality of assets or part thereof as an autonomous concept of EU law. Its scope must be determined according to the principles governing the common system of VAT, rather than by national tax classifications that could undermine its uniform application across Member States.

One of the most significant aspects of Peckeger is the recognition of the direct effect of the first paragraph of Article 19 in the circumstances examined by the Court.

The General Court considers that, once a Member State has chosen to apply the no-supply rule, the provision is sufficiently precise and unconditional for a taxable person to rely on it before a national court, in proceedings against the competent tax authority, where the national legislature has exercised the discretion conferred by the second paragraph of Article 19 in a manner contrary to EU law.

Accordingly, a Member State that has implemented the regime but has unlawfully restricted its scope cannot rely on that restriction against a taxable person who can demonstrate that the transaction in question does in fact constitute the transfer of a totality of assets or part thereof.

The scope of this finding must, however, be properly defined. The judgment does not establish a right for taxpayers to require a Member State that has never exercised the option under Article 19 to introduce the regime. Direct effect operates in the circumstances examined in Peckeger: where the Member State has already opted to apply the EU rule but has subsequently subjected it to restrictions that are not permitted by the Directive.

The judgment also addresses the contribution of the properties from the perspective of Articles 2 and 16 of the VAT Directive.

First, the General Court concludes that a contribution to a company of which the transferor is the sole shareholder, made without the issue of additional shares or any other effective consideration, does not constitute a supply of goods for consideration within the meaning of Article 2(1)(a).

For a transaction to be regarded as being made for consideration, there must be a legal relationship involving reciprocal performance, and the consideration received must represent the actual countervalue of the goods transferred. The mere fact that the transferor is the sole shareholder of the recipient company is not sufficient to satisfy that requirement.

Second, the General Court holds that a transfer free of charge of business assets which had previously given rise to a full or partial right to deduct input VAT falls within the situation contemplated by Article 16 of the VAT Directive, under which certain disposals free of charge are treated as supplies of goods for consideration.

That conclusion must nevertheless be read systematically together with Article 19. Classification of a transaction as a transfer free of charge for the purposes of Article 16 does not exclude or prejudge the possible application of the no-supply rule where the transferred assets meet the requirements for a transfer of a totality of assets or part thereof.

Indeed, Article 19 expressly covers transfers made free of charge and contributions to companies.

Importantly, the judgment does not itself establish that the properties at issue necessarily constituted a totality of assets or part thereof. It is for the national court to determine whether the transaction actually satisfies the requirements of Article 19 in light of the specific circumstances of the case.

What is the relevance of Peckeger for Spanish VAT?

In Spain, the judgment should be considered in conjunction with Article 7(1) of Law 37/1992 on Value Added Tax, which treats as outside the scope of VAT the transfer of a set of tangible and, where appropriate, intangible assets forming part of the transferor’s business or professional assets where they constitute, or are capable of constituting, an autonomous economic unit in the hands of the transferor capable of carrying on a business or professional activity by its own means.

Spanish VAT legislation also expressly provides that application of this regime is determined irrespective of the tax treatment applicable to the transfer for the purposes of other taxes.

In this respect, the Spanish rules are consistent with one of the main conclusions reached in Peckeger and do not, at least directly, contain the same type of restriction that gave rise to the Austrian proceedings.

Nor does the judgment support the conclusion that the exclusions currently contained in Article 7(1) of the Spanish VAT Law —including certain mere transfers of goods or rights— are incompatible with EU law. Their application must continue to be assessed in light of the circumstances of each transaction and, in particular, whether the assets transferred genuinely form an organisational structure capable of independently carrying on an economic activity.

The relevance of Peckeger for Spain therefore lies primarily in its interpretative significance and in the protection afforded to taxpayers. It confirms that the concept of a transfer of an economic unit must be determined in accordance with the autonomous concept established under EU law and that national restrictions may not go beyond those permitted by Article 19 of the VAT Directive.

The Peckeger judgment consolidates the EU-law framework governing transfers of a totality of assets or part thereof and limits the ability of Member States to impose their own additional restrictions once they have opted to apply Article 19 of the VAT Directive.

Its principal contribution is twofold: national tax classifications unrelated to VAT cannot be used to exclude transactions that objectively fall within Article 19 and, where a national restriction is incompatible with the Directive, the taxable person may rely directly on that provision before the national courts against the tax authority.

At the same time, the judgment clarifies the VAT treatment of contributions made without consideration, distinguishing between the absence of a supply for consideration and the possible deemed-supply rule under Article 16, without dispensing with the separate analysis required under Article 19 where the transaction may constitute a genuine transfer of a totality of assets or part thereof.

At ILIA ETL GLOBAL, we closely monitor developments in EU VAT case law due to their direct relevance for the structuring and tax review of corporate contributions, business reorganisations and transfers of economic units.

Article prepared by our colleague Xavier Vilalta.