Deduction of VAT if the development does not go ahead
The deduction of VAT on costs must be determined initially on the basis of designated use.
Point of law and interest
It had been established that the development would result in due course in a transfer of a building subject to VAT, while one transfer of a building would be exempt from VAT. In 2013 and 2014, the interested party deducted in its tax return the full amount of VAT on the development costs that had been incurred at that time. In 2015 it became apparent that the development would not go ahead. The question that arose was if and/or to what extent the VAT deducted in 2013 and 2014 had to be corrected.
Assessment by the District Court
The District Court of Gelderland delivered its judgment on 13 February this year. According to the Court, the deduction of VAT must be limited to the amount to which the interested party was entitled on the basis of the aforementioned designated use. What is interesting is that the district court explicitly notes that in the period to which these proceedings relate (2013 and 2014), the interested party did not know at that stage that the development would not go ahead. It actually only knew this in 2015.
The question is of course, and above all for the general real estate practice; what effect does the fact, that the project does not go ahead, have on the deduction of VAT from costs incurred earlier? Unfortunately this case does not give an answer to this question.
If you have any further questions on this issue or would like to receive more information, please contact Jérôme Germann, Luca van Silfhout or your trusted adviser at the Loyens & Loeff Real Estate Tax Team.
Luca van SilfhoutSenior associate Tax adviser
Luca is co-author of the book 'Building in the Netherlands’. This publication is intended to be a handy overview of the most important legal and tax facets of and for Dutch building and development practice.T: +31 20 578 52 92 M: +31 6 22 10 93 79 E: email@example.com