If a new building, a building under construction or a building site subject to VAT is transferred, that transfer is subject to VAT by operation of law and the acquisition is exempt from real estate transfer tax (‘RETT’). The question that arose in the case in question was whether the transfer of a building that was refurbished extensively to the extent that only the facade and some floor slabs were preserved was subject to VAT by operation of law. In short, does the situation in question involve the transfer of a newly constructed property, a building site subject to VAT, a building under construction or the transfer of an old building? In its judgment, the Dutch Supreme Court provides an important indication as to how to categorise such a building and it provides points of reference on how to determine which regime applies to the transfer of a largely demolished building.

In 2007, the seller and the buyer concluded an agreement for the purchase of a parcel of land and the commercial building constructed on it. At the time of the transfer on 1 October 2007, the building had been entirely demolished except for the facade, and the foundation for the new building had been laid. The transfer deed stated that the seller would transfer a parcel of land intended for the construction of retail premises and further appurtenances to the buyer and that the seller had demolished the old building in order to construct a new building. In the transfer deed, the parties adopted the position that the transfer of the immovable property was subject to VAT and the buyer relied on the concurrence exemption for RETT purposes. The inspector in this case argued that the situation involved the transfer of an old building (which was subject to RETT) rather than the transfer of a new building.

The Supreme Court ruled that the assessment as to what was transferred must be based on the condition of what was transferred and the arrangements made between the parties regarding the demolition and new construction work that was performed by or at the expense of the seller. It is irrelevant for the purposes of the assessment that the work performed or yet to be performed on the old business premises will at some point after the transfer lead to the creation of a newly constructed property (the end result).

The Supreme Court left it to the court of appeal to which the case was remanded to perform the assessment, but did indicate to that court that if the demolition and renovation work that had been performed up to the time of the transfer was part of the seller’s performance under the contract, then, in this case, after the demolition, no development remained that could fulfil the function of a building. The structure on the land that was transferred on 1 October 2007 could only serve as the basis for a new building, which meant that the situation concerned a transfer subject to VAT.

That judgment means that even if old parts of a building remain intact, the situation could involve a transfer subject to VAT. This will be the case if the parts of a building remaining after demolition can no longer function as a building and the seller bears all the expense and risks associated with the demolition. It will depend on the envisaged use of the building whether the purchase should be structured as a transfer subject to VAT or as an acquisition subject to RETT. We would be happy to advise you ahead of time as to what the desired end result will yield, which will depend on the particulars of the project.

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