Classic: Rompelman and the start of taxable person status

The 1986 Rompelman judgment established that preparatory acts already form part of an economic activity. When a business is starting out, after all, the costs come before the revenue.

The judgment turns on whether someone can be regarded as a taxable person for VAT purposes. Ms Rompelman owned a property that she let to her son and his partner. The Dutch Tax Administration did not treat her as a taxable person because she let only one property.

When does taxable person status begin?

The judgment laid down important criteria for qualifying as a taxable person, and for when that status begins. Before a business actually starts its economic activity, preparatory acts can already count as business activities. The Court of Justice confirmed that those acts can form part of an economic activity.

When a business is starting out, the costs come before the revenue. What matters is that you can properly substantiate that the costs relate to, and are necessary for, the later economic activities, and were not incurred purely for a hobby or private purposes.

The criteria

First, there must be an economic activity, with goods or services supplied for consideration. In Rompelman, letting the property counted as an economic activity because rent was received.

Second, the activity must be carried on continuously rather than occasionally. Regular letting satisfied that.

Third, there must be independence: the activity is carried out independently and under one's own responsibility. Because Ms Rompelman let the property herself and set the terms, that was met too.

The Court held that she could be regarded as a taxable person. What matters is not the number of properties let but the nature and continuity of the activity.

What this means in practice

Anyone about to carry out economic activities for consideration, and buying goods or services for that purpose, would do well to register as a taxable person during the preparatory stage. That matters for deducting the VAT charged in good time, that is in the period in which the invoice is received. It avoids a situation in which a late claim can only be granted at the authorities' discretion, with no right of appeal against that decision.

A warning on solar panels and the small business scheme

Private individuals who bought solar panels before 2023 generally registered as taxable persons, deducted the VAT on the panels and then registered for the small business scheme. They remain taxable persons for as long as the panels are operated, but because of the scheme they make only exempt supplies.

If they then want to start another business, they run into a problem. Because the scheme treats their economic activities as exempt turnover, there is no right to deduct during that period. Leaving the scheme and deducting VAT again is only possible once it has applied for at least three years, or once turnover exceeds the € 20,000 threshold.