Transfer of newly built and leased office building subject to VAT
According to the Court of Appeal, the transfer by a property developer of a newly built and leased building is subject to VAT. According to the Court of Appeal, this does not constitute a totality of assets for VAT purposes (also known in practice as the 'transfer of a going concern', or 'application of Section 37d of the Turnover Tax Act').
Point of law and interest
In general terms, the transfer of a leased building by an investor to another investor qualifies as a 'totality of assets for VAT purposes', so that no VAT is payable on the transfer of the building. At the same time, it is known that the Tax and Customs Administration, when asked, does not approve of this regime if the vendor is a property developer (not an investor) who transfers a developed property in a recently let condition to an investor.
The building in question was let, exempt from VAT, to an insurance company. The application of Section 37d of the Turnover Tax Act means no VAT on the purchase sum that the investor has paid, but non-deductible VAT of the property developer. The non-deductible VAT of the property developer was lower than the VAT on the purchase sum (certain elements, such as (internal) and other costs and the property developer's profit) are not included in the VAT levy after all. The lessee would pay the VAT on the purchase sum by way of compensation. Also, the agreement was that if the transfer to the purchaser would qualify as a 'totality of assets', the excess compensation paid would be refunded to the lessee.
Assessment by the Court of Appeal
The Court of Appeal gave its ruling on 4 April this year. It held that the aforementioned doctrine cannot be applied to this transfer, because the property developer did not develop the building with the intention of letting it itself, but in order to sell it. In the Court of Appeal's view, the application of this regime therefore is not in line with this aim and purport.
For real estate practice, it is important that case law provides a clear and applicable standard for the transfer of recently let, newly developed property. The Court of Appeal's ruling, however, does not provide this and also leaves many questions unanswered. Incidentally, we take the view that once property is transferred in a let condition, Section 37d of the Turnover Tax Act should indeed apply. We await the Supreme Court's opinion on this issue with interest and will keep you updated.
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