Long-term let of a holiday home to a director still counts as short stay

The Court of Appeal in Arnhem-Leeuwarden held that a taxpayer was entitled to rely on the State Secretary's short-stay policy, even where that policy may conflict with an interpretation of the law consistent with the directive.

The facts

The case concerns a company that bought a house for € 2,010,000 in 2020 and had it renovated and furnished. It deducted the input VAT on the renovation costs. The house was let for one year to the company's managing shareholder for € 6,000 a month including VAT.

Besides furniture, gas, water, energy and garden maintenance, the company also arranged and paid for the window cleaner, boiler and alarm system maintenance and everything else required. The invoices were addressed to the company. According to a statement by the director, he stayed in the house for a total of 32 days in the first year.

The dispute

The inspector raised an additional assessment and refused a refund claim, on the basis that there was no short-stay letting: the lease had after all been concluded for a period longer than six months.

The short-stay exception to the VAT exemption for letting immovable property applies to letting within the framework of the hotel, guesthouse, camping and holiday accommodation sector to people staying only for a short period. Where the exception applies, the exemption does not, and the reduced rate of 9% applies instead.

The court's ruling

The court holds that the letting does not fall within the statutory short-stay exception, because the company does not in fact compete with hotels and holiday businesses. Even so, the company can rely on the principle of legitimate expectations.

It was entitled to rely on the interpretation in the now-lapsed 2013 property decree. Under that decree there is a short-stay letting where guests actually stay no more than six months in furnished accommodation and do not move their social life there. The director made it plausible that he and his family used the house as a holiday home and stayed only briefly, for periods ranging from a few days to a maximum of two weeks. Because national legislation on this point is not sufficiently clear and predictable, the company was entitled to rely on the explanation in that decree.

The company could therefore deduct the VAT on the renovation costs in full and owed 9% VAT on the monthly rent of € 6,000.

In practice

A new property decree was published in December 2023. Its text contains no specific changes to the short-stay exception, so this ruling also matters for interpreting the new decree. Its significance will diminish in 2026, however, because the VAT rate on short-stay letting rises from 9% to 21% on 1 January 2026.