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06 December 2019 / article

VAT due on advance payment and transfer of the right to delivery of agricultural land

The Noord-Holland District Court has ruled that the property developer is liable for VAT in respect of the advance payment for the building plot, because it is an advance payment of the purchase price for a VAT-taxed transfer and does not involve a loan. In addition, the District Court ruled that the transfer of the right to delivery is a service subject to VAT.

A property developer bought a building plot together with another party. It can be deduced from the sale and purchase agreement that the parties assume that the delivery of the plot in question will be subject to VAT. Before the plot was delivered to the property developer and the co-purchaser, they sold it on to a third party. In this resale the sales contract included the stipulation that in case of delivery takes place after a certain date, the buyer will make an advance payment. As delivery did not take place before this date, the buyer made an advance payment to the property developer. In the end, delivery did not take place. In addition to this plot, the property developer bought a plot of cultivated land. The property developer then transferred the right to delivery to a third party. The property developer did not pay VAT on either transaction. The tax inspector imposed additional tax assessments.

Question of law Question of law and importance

With regard to the building plot, the dispute is whether the advance payment is subject to VAT. The developer considers that it is only a loan and that there is an insufficiently direct link between the payment and the delivery yet to be made.

With regard to the plot of cultivated land, the question is whether it is a delivery or a service. The developer considers that it is a tax-exempt delivery of a plot of land, while the tax inspector considers that it is a taxable service, because only the right to delivery is transferred.

Assessment by the District Court

The Noord-Holland District Court ruled that the property developer is liable for VAT in respect of the payment for the building plot. The circumstances that interest is calculated and that a repayment obligation is included in the event of non-delivery do not, in the opinion of the Court, alter this. With regard to the plot of cultivated land, the Court ruled that it concerned a taxable service, because the property developer had not yet received the land and therefore did not have the power to dispose of the property as the owner. Since the property developer does not have power of disposal over the plot, there can be no question of delivery.

Practical implications

The Court's ruling with regard to the plot of cultivated land shows that the transfer of a position under a contract for VAT purposes is treated differently from the transfer of the property to which the contract relates. For VAT purposes, transferring the position under a contract will in most cases qualify as a service subject to VAT. The transfer of the property in question will in principle be exempt from VAT, except in the case of the transfer of building land subject to VAT or new real estate, for example.

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