© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
E4. Cessation of economic activity
Statutory rules​
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- Anything done in connection with termination/intended termination treated as done in course of business
"(5) Anything done in connection with the termination or intended termination of a business is treated as being done in the course or furtherance of that business." (VATA s.94)
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- Disposition of business or assets of a business treated as supply in course of business
"(6) The disposition of a business, or part of a business, as a going concern, or of the assets or liabilities of the business or part of the business (whether or not in connection with its reorganisation or winding up), is a supply made in the course or furtherance of the business." (VATA s.94)
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What amounts to cessation​
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- No cessation where property has laid empty for 2 years but person sought to rent it out
"[53] In the light of the foregoing, the answer to the first question is that Articles 167, 168, 184, 185 and 187 of the VAT Directive must be interpreted to the effect that they preclude national legislation which provides for the adjustment of the VAT initially deducted on the ground that a property, for which the right to opt for taxation was exercised, is regarded as no longer being used by the taxable person for the purposes of its own taxed transactions, where that property has remained unoccupied for more than two years, even though it is established that the taxable person has sought to rent it during that period." ​(Imofloresmira C-672/16)
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Same economic activity may continue even after decision to cease/wind-up​
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- Economic activity may continue into liquidation
"[46] Consequently, in a situation such as that at issue in the main proceedings, in which the company has been the subject of a court decision ordering the cessation of the activity for which it had been created, but in which it is not disputed that that company continued, whilst being placed under liquidation, to generate a turnover by carrying out economic transactions, that company must be considered to have the status of a taxable person and, consequently, it cannot be required, in order to be able to deduct the VAT calculated on its available assets, to pay the amount of VAT thus calculated." ​(Wind Inovation 1 C-552/16)
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- Purpose of liquidating assets for the benefit of creditors does not mean cessation
"[35] It is therefore necessary to examine whether economic activity may be deemed to have ceased as a result of the declaration of insolvency of the economic operator concerned, in so far as the consequence of that declaration of insolvency, in accordance with the rules laid down by national law, is that the transactions carried out after it may serve only to liquidate the assets of that operator for the benefit of its creditors.
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[38] Consequently, since the activity must be considered per se and without regard to its purpose or results, the mere fact that the initiation of insolvency proceedings in respect of a taxable person changes, in accordance with the rules laid down in national law, the purposes of that taxable person’s transactions, in the sense that those purposes no longer include the long-term operation of its business, but relate solely to its liquidation for the purposes of extinguishing debts followed by its dissolution, cannot, in itself, affect the economic nature of the transactions carried out in the course of that business." (BE C-182/20)
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- Sales in liquidation for purpose of paying debts does not affect economic nature of transactions
"[50] However, that might not be the case where the placing of the taxable person concerned in liquidation has nevertheless resulted in taxed transactions being carried out, for example the sale of assets for the purposes of discharging the taxable person’s debts, even though that does not form part of the economic activity initially planned by that taxable person.
[51] In that regard, the Court has held that, since the activity must be considered per se and without regard to its purpose or results, the mere fact that the initiation of insolvency proceedings in respect of a taxable person changes, in accordance with the rules laid down in national law, the purposes of that taxable person’s transactions, in the sense that those purposes no longer include the long-term operation of its business, but relate solely to its liquidation for the purposes of extinguishing debts followed by its dissolution, cannot, in itself, affect the economic nature of the transactions carried out in the course of that business (judgment of 3 June 2021, AdministraÅ£ia JudeÅ£eană a FinanÅ£elor Publice Suceava and Others, C‑182/20, EU:C:2021:442, paragraph 38).
[52] The Court has therefore ruled that Articles 184 to 186 of the VAT Directive must be interpreted as precluding national legislation or practice whereby the initiation of insolvency proceedings in respect of an economic operator, entailing the liquidation of its assets for the benefit of its creditors, automatically places an obligation on that operator to adjust the VAT deductions which it has made in respect of goods and services acquired before it was declared insolvent, where the initiation of those proceedings is not such as to prevent that operator’s economic activity, within the meaning of Article 9 of that directive, from being continued, in particular for the purposes of the liquidation of the undertaking concerned (judgment of 3 June 2021, AdministraÅ£ia JudeÅ£eană a FinanÅ£elor Publice Suceava and Others, C‑182/20, EU:C:2021:442, paragraph 45)." (Vittamed C-293/21)
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But see:
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"[39] In the present case, it is apparent from the file before the Court that the objective of the disposal of shares at issue in the main proceedings was to use the proceeds of that sale to settle the debts owed to Kaupthing Bank, the new proprietor of the Arovit group. As stated in the preceding paragraph of this judgment, such a sale cannot be deemed to be either a transaction for which the direct and exclusive reason is the taxable economic activity of C&D Foods, or a transaction constituting the direct, permanent and necessary extension of the taxable economic activity of that company. In those circumstances, that sale does not constitute a transaction consisting in obtaining income on a continuing basis from activities which go beyond the compass of the simple sale of shares and, accordingly, it does not come within the scope of VAT. It follows that the VAT relating to the disputed services is not deductible." (C&D Foods Acquisition C-502/17)
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- Would breach fiscal neutrality/distort competition to treat supplies during liquidation as non-economic
"[39] Furthermore, as the European Commission has pointed out, that interpretation is also required in the light of the principle of fiscal neutrality, which precludes in particular two transactions which are identical or similar from the point of view of the consumer, which are therefore in competition with one another, from being treated differently with regard to VAT (see, to that effect, judgment of 4 March 2021, Frenetikexito, C‑581/19, EU:C:2021:167, paragraph 32).
[40] Even if the initiation of insolvency proceedings, such as those at issue in the main proceedings, normally entails the disappearance of the undertaking concerned, the fact remains that, as long as that undertaking continues its activities during the insolvency proceedings, it is in competition with other taxable persons carrying out services similar to its own, so that the services concerned must, in principle, be treated in the same way for VAT purposes." (BE C-182/20)
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Winding up as part of economic activity​
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- Continuing obligations arising out of business meaning economic activity continuing
"[24] Those same considerations dictate that transactions such as the payments which Fini H continued to have to make during the period over which its restaurant business was wound up must be regarded as forming part of the economic activity within the meaning of Article 4 of the Sixth Directive.
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[27] In the main case, Fini H’s obligation, owing to a non-termination clause in the lease, to continue paying business rent and charges on a property which it had leased for the purpose of carrying on a restaurant business until the normal expiry of the lease could, in principle, be regarded as being directly and immediately linked to the restaurant business." (Fini C-32/03)
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