The recent publication in ‘Vastgoed Fiscaal & Civiel’ on the VAT treatment of newly developed (VAT-exempted) leased property, to which Arianne Bonthuis of our Tax practice contributed, is part of the debate on the scope of Article 37d of the Dutch VAT Act that has gained renewed relevance. The Dutch Supreme Court has raised fresh questions after reviewing a case involving the transfer of a newly developed residential complex, challenging earlier assumptions about when a transfer qualifies as a “transfer of a going concern”. Although both the Court of Appeal and the Advocate General considered Article 37d applicable, the Supreme Court is not yet persuaded, reopening a discussion with significant implications for developers, investors and advisers. Here are 3 key takeaways.
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#1 Focus on the assets, not the seller’s intentions
Recent case law and the Advocate General’s opinion confirm that the decisive question under Article 37d VAT Act is whether the transferred assets allow for the continuation of an autonomous economic activity. The seller’s intentions, even if the brief period of leasing was solely aimed at increasing sale value, should not influence the analysis. This aligns with the line of reasoning in CJEU case law which places the emphasis on the objective capacity of the assets to operate as a business unit.
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#2 Uncertainty around the role of Article 136 VAT Directive
A key twist in the current case is the Supreme Court’s suggestion that the sale might be exempt under Article 136 VAT Directive, which exempts goods used exclusively for VAT‑exempt activities. This is remarkable, as the Netherlands has not implemented this provision for immovable property due to the implemented Article 12 VAT Directive which allows Member states to levy VAT on the transfer of new buildings up to two years of first use.
If Article 136 were applicable, it could limit or even bypass the current articles of the Dutch VAT Act. However, only if the transfer of the assets does not qualify as a transfer on which Article 37d VAT-Act is applicable.
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#3 Potential impact for developers and investors
Depending on how the General Court ultimately interprets these provisions, the VAT treatment of newly developed, VAT-exempt leased property transfers may change materially. A narrower or broader application of Article 37d affects:
- VAT financing and cash‑flow for investors
- The length and scope of revision periods
- Eligibility for the real estate transfer tax concurrence exemption
- The tax position of developers whose margins are currently VAT‑protected under Article 37d
Until the Court provides clarity, uncertainty will persist, particularly for developers using short‑term leases to optimise saleability.
What this means for you
With the Supreme Court’s questions now before the Court of Justice, the outcome may reshape the VAT landscape for real estate transactions involving newly developed leased property. Developers, investors and advisers should closely monitor the developments, assess pending or planned transactions, and consider whether current structures remain robust. If you question whether this affects your business, please don’t hesitate to contact our team.
The transfer of newly developed leased property raises important VAT questions with significant implications for developers and investors.
