June 2015, a vendor transferred a building. The entire building was vacant, part of it had never been used before. The supply of the unused part of the building was charged with VAT by operation of law. Exempt use of the remaining part would lead to revision (repayment) of part of the investment VAT attributable to those parts. For the remaining part, therefore, vendor and buyer opted for supply subject to VAT. Opting for a supply subject to VAT is subject to the condition that the buyer uses the property in the financial year of supply and the following financial year (reference period) for activities which allow for at least 90% VAT recovery. However, the buyer had supplied the property exempt from VAT within three months of acquisition. As a result, with retroactive effect to June 2015, revision VAT was payable by the vendor because the conditions for opting for a supply subject to VAT were not met. The vendor considered that this additional tax assessment had no legal basis because the retroactive VAT due could not have been paid on the basis of the VAT return.

Point of law

There is a dispute as to whether the tax inspector was able to impose the revision VAT from this vendor.

Assessment by the Court of Appeal

The Arnhem-Leeuwarden Court of Appeal has ruled that the Dutch legislation is in line with the corresponding provisions in the EU VAT Directive. It follows from the Directive that the deduction of input VAT can be changed retroactively if the elements relevant to this right of deduction change. The Dutch legislator was entitled to impose conditions on the option of a taxable supply. According to the Court of Appeal, the retroactive implementation and formalisation of the revision, if it turns out afterwards that these conditions are not met, is inherent in this competence of the legislator. The revision VAT was therefore rightly imposed by means of an additional tax assessment.

Practical implications

As the vendor of a property, it is important to consider whether it is desirable to opt for a supply subject to VAT in order to avoid VAT damage and what agreements should be made with the buyer regarding compliance with the conditions attached to this option. After all, the vendor is dependent on the buyer for whether or not a claim for revision arises.