The European Court of Justice today ruled that the Dutch VAT Deduction Exemption decree (Besluit Uitsluiting Aftrek (“BUA”)) is not in conflict with European law. This means that Dutch companies will not be able to deduct VAT on a wide range of employee benefits. This ruling by the European Court brings an end to lengthy discussions concerning the shelf-life of this decree. Anticipating the European Court’s ruling, several companies lodged complaints against BUA-related adjustments or did not include adjustments in their VAT return. Companies that have not yet paid their revised BUA adjustments are however still obliged to do so.

European Court ruling dated 15 April 2010
The BUA envisages deduction exemption of VAT on expenses for business gifts and employee benefits. These are either free or offered at discounts below normal prices and are regarded as having a consumptive nature. Unlike general VAT regulations, the BUA’s roots lie in Dutch rather than EU regulations. Following a referral by the Supreme Court, the European Court questioned whether the Dutch decree is compatible with EU law. The Court decided that this is indeed the case, thereby approving the Dutch BUA decree.

Apart from business gifts, the European Court also considered the following specific categories of employee benefits:

• private transport;
• supplies of food and refreshment;
• granting of housing;
• providing the means for sport and relaxation.

The European Court ruled that EU law envisages a continuation of existing, local exclusions of deductions for Member States as regards expenses which can be expected to exclusively or partially address the private needs of an employer, their staff, and their business relations. This is under the condition that the nature or purpose of the expenses for which the right to deduct VAT is denied has been sufficiently defined. The categories that have been mentioned conform to the criteria according to the European Court. The Court hereby takes a different opinion to that taken by the Advocate General on 28 January 2010, who, in respect of the last mentioned category (means for sport and relaxation) and business gifts, ruled that this deduction had been insufficiently defined and was therefore too general. 

Implications
As mentioned previously, for the time being, the European Court’s ruling marks an end to the discussions regarding the applicability of the Dutch deduction exemption decree. The exemptions that have been listed, including VAT on expenses for company cars provided to employees who may also use them for their own private purposes, are legally valid and continue to apply in the Netherlands until such time as the EU provides further regulations relating to this matter.

Pursuant to the European Court’s ruling, the Dutch Supreme Court will still have to render its decision on this matter although the current ruling leaves little to no room for any other interpretation.

As for pending appeals that have mainly been filed in anticipation of the present case law, the Dutch Tax Authorities are expected to settle them in line with the European Court’s ruling relatively soon. This normally takes place using a standard form, with which companies are asked to retract their appeal or, if they do not wish to do so, to expand on the reasons for their appeal.

As a result of the European Court’s ruling, it only appears advisable to proceed with pending appeals if there are reasons to lodge an appeal other than the general assumption that the BUA decree is not binding which has been rejected by the European Court. Such reasons might include a company’s specific situation, for example. As regards the deduction exemption for private use of company cars, this could mean an appeal to recalculate private use differently by using data from the Netherlands Statistics Office rather than the standard fixed sum of 12% times the wage tax adjustment. It might be wise to continue pressing one’s objection, particularly now since the Ministry of Finance is currently investigating alternative ways of calculating company car expenses that are more favourable to owners of businesses.

If required, we can advise you on what the possibilities are in terms of pending appeal procedures. For more information on this and other related matters, please contact your usual point of contact at Loyens & Loeff or any member of the VAT, Customs and International Trade practice group.

Contact persons at the VAT, Customs and International Trade practice group:

Amsterdam office:  
Trudy Perié
T +31 20 578 54 99
F +31 20 578 58 42
E trudy.perie@loyensloeff.com

Arnhem office:   
Gerton Rademaker
T +31 26 334 72 12
F +31 26 334 72 92
E gerton.rademaker@loyensloeff.com
 
Eindhoven office:  
Patrick Vettenburg
T +31 40 239 44 44
F +31 40 239 44 43
E patrick.vettenburg@loyensloeff.com

Rotterdam office:
Ilse Verouden
T +31 10 224 62 25
F +31 10 411 71 77
E ilse.verouden@loyensloeff.com