A block-paved car park is not developed land for VAT

Is a block-paved car park developed or undeveloped land? The answer determines whether the supply attracts 21% VAT or transfer tax. Advocate General Ettema has advised the Supreme Court.

Why the classification matters

The Dutch Supreme Court has been asked whether a block-paved car park counts as developed or undeveloped land for VAT purposes. The case concerns a car park that has been in use as such for years and is intended to be built on with six new houses. The site was divided into six plots at the land registry for that purpose. The paving was removed and the houses built after the transfer of ownership, on the instructions of the private buyers.

What is at stake? If the land is developed, the supply of the six plots is exempt from VAT and the acquisition attracts transfer tax at (currently) 10.4%. If the block paving is not a building, the plots are building land, supplied subject to 21% VAT, and the acquisition is exempt from transfer tax. Because the buyers here are private individuals with no right to deduct, the first option is the more favourable. Had they been businesses entitled to deduct, a supply within the VAT system would have been better.

Different classifications

The District Court of Gelderland held that the paved site is developed land: in its view the paving blocks are firmly fixed to the ground. On appeal, the Court of Appeal in Arnhem-Leeuwarden held instead that the land is undeveloped.

Even so, the court held that the 2023 property decree gives rise to a legitimate expectation that one plot is developed after all. That decree states that block paving forming part of a whole in which, for example, the topsoil has been excavated and which further consists of drainage and site lighting counts as a building. On the plot in question the topsoil had been excavated, block paving had been laid between the kerbs and street lighting was present. Underground drainage pipes in the form of a sewer had also been laid, with a soakaway connected to it. According to the court, those specific arrangements for draining rainwater are a form of drainage within the meaning of the decree.

The Advocate General's opinion

The taxpayer appealed to the Supreme Court. The dispute in cassation is limited to the five plots the court classified as building land. Advocate General Ettema has advised the Supreme Court to dismiss the appeal: in her view the court rightly held that the block-paved plots are not developed land.

We share that view and expect the Supreme Court to follow the opinion. For VAT purposes there is a building where a structure is fixed to the ground, meaning it cannot easily be removed or dismantled. Block paving is laid on sand and can normally be lifted easily, for instance with a loader. For a fuller discussion we refer to our colleague Matthijs van der Wulp's doctoral thesis on property transactions in European VAT and his article on block paving as a building on sand in PE Notariaat 2023/22.

In practice

The supply of a block-paved site is in principle subject to 21% VAT. As long as the State Secretary does not amend the property decree, such a site can nevertheless be treated as developed land under that policy. A successful reliance on the policy requires the plot supplied to have not only block paving but also site lighting and drainage, including a sewer with soakaways connected to it.

Where a block-paved site is to be sold or bought, check carefully whether relying on this policy is possible and desirable. It is equally important to review sales already made between 2020 and the present for the risk of an additional assessment. Where a paved site was wrongly supplied within the transfer tax system, the inspector can assess 21% VAT on the seller.