Track Record: Damages Assessed at €256,135 After Concealment of VAT Refund in Share Sale

Mr. Vincent Besters represented an entrepreneur in damages assessment proceedings concerning a professional error in a share sale

In December 2022, the Central Netherlands District Court issued a judgment in damages assessment proceedings in which mr. V.M. Besters acted as counsel for the claimant: an entrepreneur who had sold shares without knowing that the company was entitled to a substantial VAT refund.

What was the case about?

In 2011, the entrepreneur sold shares in a home care company for a purchase price of €94,447. The price was based on the intrinsic value of the business. What he did not know at the time: the company was entitled to a refund of €237,876 in VAT for the period from 2006 through April 2011.

His tax adviser had not informed him of this possibility. As a result, the VAT claim did not appear on the balance sheet and was not taken into account during price negotiations. The buyer — who discovered the claim during due diligence — thus benefited from a windfall that should have accrued to the seller.

In the main proceedings (which went up to the Arnhem-Leeuwarden Court of Appeal), it had already been established that the tax adviser had committed a breach of contract. In these follow-up damages assessment proceedings, the court had to determine the precise extent of the loss.

What did the court decide?

The court appointed an independent expert (registered accountant/registered valuator) to answer five questions. The key findings:

• The purchase price would also have been €94,447 if the VAT had been reclaimed prior to the sale and had flowed to the seller, because the buyer had already shown interest in the shares before discovering the VAT claim and the price was based on intrinsic value.
• The loss therefore consisted of the amount the entrepreneur should have received before the share transfer: the VAT refund plus statutory interest, after deduction of applicable taxes.

The court assessed the total loss at €256,135 and rejected the tax adviser's argument that the loss amounted to no more than €25,000.

What does this mean for entrepreneurs?

This case illustrates how significant the financial consequences of a professional error by a tax adviser can be in a share transaction:

• Always verify all outstanding tax claims before a share transfer. Refund rights (VAT, dividend tax, corporate income tax) are valuable assets that must be factored into the price.
• Due diligence works both ways. As a seller, you want to know what the buyer will discover during due diligence — so that you too can benefit from that value.
• A professional error by an adviser can cost a fortune. If an adviser fails to inform you of a substantial entitlement, you can hold them liable for the full loss you suffer as a result.
• Damages assessment proceedings require specialist evidence. In complex cases like this, an independent expert is essential to objectively establish the loss.

Case Reference

This post is based on ECLI:NL:RBMNE:2022:5252.

Mr. V.M. Besters acted as counsel for the claimant in this case.