Business Succession and VAT: Lessons from CJEU Case T-366/25 (Szytelbiecka)

Introduction

A transfer of a going concern (TOGC) is a special VAT mechanism, that allows the transfer of a business, or an autonomous part of a business, to be treated as falling outside the scope of VAT.

The purpose of the provision is to facilitate business continuity by ensuring that the transfer of an ongoing economic activity does not give rise to unnecessary VAT costs or cash flow burdens. For TOGC treatment to apply, the assets transferred must constitute a functioning business capable of carrying on an independent economic activity, and the transferee must intend to continue that activity rather than simply dispose of the assets.

As a result, TOGC relief is commonly relied upon in business sales, group reorganisations and succession planning arrangements where an existing business is transferred as a going concern to a new owner who will continue operating it.

The recent CJEU case, T-366/25, examined whether the TOGC treatment can apply where a business is transferred to multiple recipients, who subsequently combine their interests in a partnership, that continues the business.

Legislative Background

Article 19 of the VAT Directive permits Member States to treat the transfer of a totality of assets, or part thereof, as falling outside the scope of VAT. The provision is designed to facilitate business continuity by avoiding VAT charges that could otherwise arise when an economic activity passes from one operator to another. The underlying objective is to ensure that genuine business transfers are not hindered by unnecessary tax costs where the economic activity continues in substantially the same form.

Over time, the Court’s jurisprudence has established that the relief applies only where the assets transferred constitute a business, or an autonomous part of a business, capable of carrying on an independent economic activity. In addition, the recipient must intend to continue the business activity rather than immediately liquidate or dispose of the assets received.

Facts of the Case

The taxpayer in the case operated a VAT-registered business in Poland and wished to transfer that business to her two daughters as part of a family succession arrangement. Under the proposed structure, each daughter would receive a 50% interest in the business. Following the transfer, the daughters intended to contribute their respective interests to a partnership that they jointly owned and through which the business activities would continue.

Before implementing the transaction, the taxpayer sought a ruling from the Polish tax authorities confirming that the transfer would qualify as a transfer of a going concern and would therefore fall outside the scope of VAT. The tax authority rejected this analysis, arguing that neither daughter would receive an independently functioning business. Instead, each would receive only a fractional interest in the undertaking, which on its own could not support an autonomous economic activity. The dispute ultimately reached the Polish Supreme Administrative Court, which referred questions to the European courts for a preliminary ruling.

The Court’s Decision

The Court held that the proposed arrangement did not satisfy the requirements of Article 19 and therefore could not benefit from TOGC treatment. In reaching this conclusion, the Court emphasised that the transfers to the two daughters had to be analysed as two separate transactions. Although the transfers were commercially connected and formed part of a broader succession plan, each transfer had its own legal identity and had to be assessed independently for VAT purposes.

The Court found that neither daughter received a business capable of operating independently. Each daughter acquired only a half-share in the undertaking, and that share did not constitute an autonomous economic unit capable of carrying on an economic activity in its own right. As a consequence, the transfers could not be regarded as transfers of a totality of assets or of an independently functioning part of a business.

The Court also rejected the argument that the intended contribution of the interests to the daughters’ partnership should affect the VAT analysis. It stressed that the conditions for TOGC treatment must exist, at the moment when the transfer takes place. The subsequent contribution of the interests to a partnership could not alter the fact that the initial transfers themselves failed to satisfy the requirements of Article 19.

Key Principles Emerging from the Judgment

One of the most important principles arising from the judgment is that a transferee must receive assets capable of supporting an independent economic activity. The Court made clear that a mere fractional ownership interest will not satisfy the requirements for TOGC treatment where that interest cannot be operated separately as a business. What matters is not the value of the assets transferred but whether they constitute an autonomous economic unit.

The judgment also reinforces the importance of timing, in relation to the VAT analysis. Eligibility for TOGC treatment must be assessed at the date of the transfer itself. Future intentions, planned restructuring steps, or commercially linked transactions cannot retrospectively transform a non-qualifying transfer, into one that falls within Article 19.

A further lesson from the case concerns the limits of the economic reality principle. While EU VAT law frequently looks beyond legal form to commercial substance, the Court confirmed that the legal characteristics of individual transactions remain critical. A broader commercial objective, such as ensuring business continuity through a partnership, cannot override the need for each transfer to satisfy the statutory requirements, in it’s own right.

Practical Implications

The judgment has significant implications for family business succession planning, particularly where ownership is to be divided among several beneficiaries. Taxpayers and advisers will need to consider carefully whether the proposed transfer structure enables each recipient to obtain an independently functioning business. Where this is not possible, the transaction may fail to qualify for TOGC treatment even if the business continues uninterrupted after the transfer.

The decision is also relevant to partnership structures and corporate reorganisations. It suggests that a direct transfer of a business to the entity that will ultimately carry on the activity may be more likely to satisfy the requirements for TOGC relief than a series of intermediate transfers involving multiple recipients. Businesses contemplating reorganisations should therefore give careful consideration to the legal form and sequencing of their transactions.

Conclusion

Case T-366/25 provides a clear reminder that TOGC relief under Article 19 of the VAT Directive is subject to strict conditions. The Court confirmed that the transfer of a business in equal shares to two individuals does not qualify as a transfer of a going concern where neither individual receives an independently operable business. The fact that the recipients intend immediately to combine their interests in a partnership, is irrelevant if the requirements for relief are not satisfied at the time of the initial transfer.

The judgment reinforces the principle that TOGC treatment depends on the nature of the assets transferred and the position of the transferee at the moment of transfer. As a result, it is likely to play an important role in future cases involving family business succession, partnership arrangements and complex restructuring transactions across the European Union.