VAT due diligence debt portfolio

One of our clients considers to purchase the shares in a few Dutch companies that hold a considerable debt portfolio. We were requested to perform a due diligence from a VAT perspective on these debt portfolios. One of these companies acquired the debts from a telephone company.

Note that if you didn’t pay your telephone bills for quite some time in The Netherlands, there’s a good chance that your debt is now owned by a foreign investor from the UK or Scandinavia. Telephone companies sell their (bad) debts to investors. Depending on the value of the debt portfolio and the sales price this can be good business for the telephone company as well as the investor. More than 17% of that unpaid phone bill consists of VAT. This VAT was paid to the Dutch tax authorities by the phone company when they sent you your telephone bill (invoice).

As from January 1st, 2018 the Dutch VAT regulation allows the owner of the debt to request for a refund of this VAT if the debt is not paid within one year. Before 2018, reclaiming this VAT in consumer debt portfolios was only possible after making extensive arrangements with the tax authorities. Reviewing all those arrangements and checking the compliance with these arrangements is a very important aspect of the valuation of such a debt portfolio. During this examination we found out that the portfolio we reviewed can – from a VAT perspective – be considered as a save investment. Nevertheless, it will be even beter if we would pay our phone bills in time….