Proposal on VAT adjustment for property investment services needs amending

The proposed adjustment scheme for investment services uses a broader definition than EU law permits and takes no account of recent case law. We responded to the public consultation.

A public consultation on the 2024 year-end regulations opened on 5 September 2024 and has since closed. It included an implementation of the adjustment scheme for investment services relating to immovable property.

In short, the measure means that from 1 January 2026 the VAT deducted on services relating to immovable property that are lasting in character, in other words that provide a benefit over several years, and where the consideration is € 30,000 or more excluding VAT, is tracked for five years and must be corrected where the use giving a right to deduct changes. Particularly with large buildings this can start numerous adjustment periods running, with a need to track for each service whether the use in an adjustment year calls for a correction.

Under the current rules the deduction is final in the financial year in which the property is first used. Deferring non-deductible use of a renovated property can therefore produce a substantial advantage. That arises above all with short-stay arrangements: renovating a property, first using it for short-stay letting taxed at 9%, and after the end of that financial year using it permanently for exempt residential letting. The proposed adjustment is intended to stop this. It can also work the other way, producing an advantage where the year of first use involves exempt use and the later adjustment years involve use that carries a right to deduct.

Adjustment for investment services

The VAT Directive allows the Netherlands to apply the adjustment scheme to services with characteristics similar to capital goods. Case law indicates that these must be services that are used on a lasting basis and on which depreciation is normally taken.

In Tax Plan 2025, however, the legislature has opted for a broader definition: a service relating to immovable property that serves that property over several years and where the consideration is at least € 30,000 excluding VAT. That brings back the element of lasting use but not the element of depreciation. Painting a large listed building at a cost of € 30,000 or more is therefore an investment service on that definition, because it serves the property over several years. Under EU VAT law it is not, because depreciation is not normally taken on repair and maintenance costs.

Case law

The proposal was published before the Court of Justice's judgment in Drebers. That judgment makes clear that it is not permissible always to apply an adjustment period of, in short, five years to investment services. For investment services such as renovations whose economic characteristics are essentially equivalent to acquiring immovable property, the legislature must apply the extended period of, in short, ten years. The proposal must be amended on that point.

The proposal also appears to disregard existing case law of the Court of Justice and the Dutch Supreme Court, under which acquiring a renovation service, or acquiring various goods and services, can result in immovable capital goods subject to a ten-year period. Under the proposal that situation would also involve an investment service with a five-year period. Such an overlap creates legal uncertainty and should be avoided in legislation.

Our consultation response

We brought these points to the attention of the Ministry of Finance. We also noted that in our view it was an unfortunate choice to include the definition of an investment service in Tax Plan 2025 while a consultation on the scheme itself was still running on Budget Day.

We hope the ministry will take another critical look at the proposed scheme and narrow it considerably. In our view that is possible without endangering its purpose of countering short-stay arrangements. In practice those arrangements typically involve renovations on which depreciation is taken and whose cost is many times the € 30,000 threshold. Nobody benefits from unnecessary extra administration.