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Legislation

Widening of the term building site for VAT purposes, with effect from 1 January 2017

donderdag 12 januari 2017

New legislation traditionally comes into effect at the start of the year. With effect from 1 January 2017, this is the case in the property world in respect of, among other things, the term ‘building site’ pursuant to the Turnover Tax Act 1968 [Wet op de omzetbelasting 1968]. 

Building site

Until 1 January 2017, a building site, pursuant to Section 11, subsection 4 of the Turnover Tax Act 1968, was regarded as
undeveloped land:

  1. which has or will be cultivated;
  2. for which measures have or will be taken that are exclusively conducive to the land;
  3. in the vicinity of which measures have or will be taken; or
  4. for which an integrated environmental permit for building activities has been granted;

all of this with a view to developing the land.

In practice, the Tax and Customs Administration strictly enforced these requirements.

Ruling

The ‘Woningstichting Maasdriel’ ruling of the European Court of Justice (ECJ EU 17 January 2013, C-543/11, ECLI:EU:C:2013:20) however, made it clear that the definition of the term building site in the Turnover Tax Act 1968 is ‘strict’ and that it is not compatible with the interpretation of the same term on the basis of the European VAT Directive (Directive 2006/112/EC, OJEU 20016, L 347).

Pursuant to this ruling, it was the national legislator’s move. The national legislator did so by amending Section 11, subsection 4 of the Turnover Tax Act 1968. With effect from 1 January 2017, pursuant to Section 11, subsection 4 of the Turnover Tax Act 1968, a building site constitutes “undeveloped land that is manifestly intended for development with one or more buildings”. From a textual point of view, that is a considerable simplification compared to the requirements that used to apply (see a to d above). From 1 January 2017, when assessing if land constitutes a building site, the circumstances of the case, including the parties’ intentions, will have to be taken into account to a greater extent than before. This is the result of the “manifest requirement” which must be complied with pursuant to Section 11, subsection 4 of the Turnover Tax Act 1968. In practice, people will undoubtedly ask how ‘broad’ the term building site can be interpreted pursuant to the new regulation. A question that will then have to be answered in case law.  

Consequences of legislative change

The practical consequences of this legislative change will be that more land will be classified as building site than before. As the transfer of a building site is taxed under VAT law, VAT may be deducted as input tax in certain circumstances, and an exemption for transfer tax (concurrence exemption) may be invoked. This may be (very) attractive financially, especially now that the national property market is recovering and the transformation and demolition of buildings are in the spotlights.

Information

If you have any questions or comments about this contribution, please contact the Property team of LVH Advocaten.

This contribution was made by Ben van Nieuwaal on behalf of the Property team.

Ben van Nieuwaal

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+31 (0)10 209 27 45
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