Between Don Bosco and KPC Herning

What is being supplied where the seller undertakes to demolish but subcontracts the work to the buyer? The District Court of Noord-Holland was the first to rule on the question.

In Don Bosco the Court of Justice made clear that the sale of an old building combined with the seller's obligation to have it completely demolished, in other words a purchase and construction agreement, qualifies as a single indivisible supply: the supply of undeveloped land. Where that demolition takes place by or for the account of the seller with a view to new construction, Woningstichting Maasdriel establishes that there is a supply of building land. That supply is automatically subject to 21% VAT, while the acquisition is in principle exempt from transfer tax.

The Don Bosco analysis does not work where the demolition takes place by or for the account of the buyer, as KPC Herning shows. There is then simply the, in principle exempt, supply of an old building, whose acquisition is in principle subject to transfer tax at 8% or 2%.

The buyer demolishes on the seller's instructions

But what is being supplied where the seller undertakes to the buyer to have the old building demolished in full, yet subcontracts that work to the buyer under a construction agreement?

Commentators have argued that this is a Don Bosco situation. The Dutch Tax Administration does not accept that, in our view rightly. In an article on the seller as a paper demolisher it has been argued that in this situation there is only on paper a demolition by or for the seller's account, and in substance a demolition by or for the buyer's account.

In short, assessing the whole legal relationship between seller and buyer, that is both the purchase and construction agreement and the construction agreement for the subcontracted demolition, means the construction element is stripped out of the purchase and construction agreement. Because views differ, clarity from the courts is welcome.

The District Court of Noord-Holland

That court was the first to address the point. In its view there is no Don Bosco situation where the seller has undertaken to demolish in full but has passed the instruction to demolish, including all control and responsibility, to the buyer, and where the purchase agreement shows that the demolition costs are reflected in the price. It cannot then be said that the demolition takes place at the seller's risk and expense. There is therefore no composite supply, but simply the exempt supply of an old building.

Does this give the clarity needed?

Not entirely, in our view. The ruling does not show whether the court would have decided the same way had the agreement not expressly recorded that the instruction to demolish, including control and responsibility, had been passed to the buyer, or had it not stated that the demolition costs were reflected in the price.

Even so, the ruling is a warning for the property sector: a Don Bosco situation takes more than a demolition obligation on paper. The seller must owe the buyer a demolition obligation in reality as well.