Classic: Maierhofer as the cornerstone of the immovable property concept

Distinguishing immovable from movable property is not always straightforward, and a great deal turns on it. Maierhofer drew that line more clearly.

Subject to conditions, the VAT exemption applies to the supply and letting of immovable property. It does not apply to movable property.

The Court of Justice judgment

In 2003 the Court of Justice answered questions referred in a dispute between Maierhofer and the German tax authorities. Maierhofer built prefabricated buildings, which the Free State of Bavaria rented from it to house asylum seekers temporarily. The buildings stood on concrete plinths resting on an underground concrete foundation, and could be dismantled by eight people within ten days for reuse.

Maierhofer had declared exempt income from immovable property in its return. The German tax authorities argued that the prefabricated buildings were movable property and that VAT had wrongly not been charged. The Federal Finance Court referred the following question:

Does making available for consideration a building constructed from prefabricated elements, which must be removed at the end of the contract and can be reused on another site, fall within the concept of the letting of immovable property within the meaning of the European VAT Directive?

The Court referred to Commission v France of 1997, from which it follows that caravans, tents and chalets are movable property because they are mobile and therefore easily moved. Maierhofer's prefabricated buildings, by contrast, are immovable: they are structures fixed to the ground that are not easily dismantled or moved, resting as they do on concrete plinths on an underground foundation and requiring eight people and ten days to take down.

The Court made clear that immovable property is an EU law concept. To determine whether an item is movable or immovable, one must assess how easily it can be moved. That showed that the Dutch Supreme Court had wrongly applied the broader civil law concept of immovable property in the sea container judgment, namely the intention that it should remain permanently in place.

The concept today

The VAT Implementing Regulation elaborates the concept, and the Dutch property decree follows it. Immovable property is:

• any specific part of the earth, on or below its surface, over which title and possession can be created
• any building or construction fixed to or in the ground above or below sea level which cannot be easily dismantled or moved
• any item that has been installed and makes up an integral part of a building or construction without which the building or construction is incomplete, such as doors, windows, roofs, staircases and lifts
• any item, equipment or machine permanently installed in a building or construction which cannot be moved without destroying or altering the building or construction

In its explanatory notes the European Commission has set out when the criteria of fixture to the ground and difficulty of movement are met. It cites settled case law, including Maierhofer, showing that one must check whether the means of fixing a building can be released without effort and without significant cost. Relevant criteria are the technical skills, tools and know-how needed to dismantle or move it, the cost and time involved, and whether moving it destroys the structure or substantially reduces its value.

In practice

Although the definition has been refined over time, the debate about how firmly an item is fixed to the ground remains live. Consider temporary accommodation built from modular units for housing asylum seekers or students, or tiny houses.

The supply of immovable property is in principle exempt, unless an exception applies, as with a new building. The supply of movable property is taxable. Misclassifying an item can have far-reaching consequences, so do get in touch if in doubt.