Sale and leaseback of a leased out newly constructed building constitutes a transfer of a totality of assets for VAT purposes
The previous edition of the Real Estate newsletter dealt with a ruling in which the transfer of a newly built property that was leased out was not considered the transfer of totality of assets as referred to in Section 37d of the Turnover Tax Act (Wet OB) and is therefore subject to VAT.
However, last year the Court of The Hague ruled that the sale and leaseback of a newly built senior housing complex constitutes a transfer of a totality of assets.
Question of law and importance
After the delivery of the complex with houses, parking spaces and business units to a housing association, the rental houses and business units were taken into use. This housing association then entered into a sale and purchase agreement based on a sale and leaseback with a buyer. The housing association would lease the complex back for 25 years and would itself act as (sub)lessor and manager. Six months after the first use, the property was transferred to the buyer in respect of which Section 37d of the Wet OB was applicable. Hence, no VAT (that would have been deductible to a limited extent for the buyer) was due. The tax inspector held the view that the delivery of the property was subject to VAT because the so-called continuation requirement had not been met.
Ruling of the Court
According to the District Court, it was only relevant whether the senior housing complex was the object of an independent part of an undertaking that is capable of carrying on the exploitation activity. According to the District Court, the letting of the complex by the buyer to the seller constitutes an autonomous activity. In addition, the continuation requirement does means that the buyer is required to carry on the same economic activity as the seller (the letting to the end users) after the transfer. Therefore, the present case involves a totality of assets and the interested party was found to be in the right.
In the previous edition of the Real Estate newsletter we indicated that in our opinion, the transfer of real estate that is let out (also from a property developer to an investor) should qualify for the application of Section 37d of the Wet OB 1968. This court ruling contains arguments for our line of reasoning.