Sale of a shopping centre by a developer: a VAT-free transfer of a going concern?
An order of the Court of Justice about a Polish shopping centre raises the question of what it means for the Dutch debate on developers transferring let property.
Where a business is transferred, VAT treats no supplies of goods or services as taking place. As a result the transferee steps into the transferor's VAT rights and obligations, so that the business passes seamlessly to whoever continues it.
Letting property is a business activity. In 2008 the Dutch Supreme Court held that the transfer of let property from one investor to another qualifies as the transfer of a going concern.
The Court of Appeal in Arnhem-Leeuwarden
In 2018 that court held that transferring a new office building developed by a developer, let at the time of transfer to an investor, is not the transfer of a going concern. The developer therefore owed 21% VAT on the supply. The Supreme Court upheld that ruling in 2020 without further reasoning.
Last year the same court nevertheless held, in two rulings, that the supply of new buildings by a developer to an investor can also be a VAT-free transfer of a going concern. Appeals against those rulings are pending before the Supreme Court.
The Court of Justice
In 2021 a Polish court referred two questions on the transfer of a going concern, in a case about the sale of an old shopping centre by a developer. The Court of Justice recently gave an order in that case, thereby indicating that its decision contains no new rule of law.
First, the Court holds that national rules need not require the transferee to continue the business acquired. As it had already decided, continuation is not a condition but a consequence of no supplies being deemed to take place. Second, not everything belonging to the business need pass across: it is enough that what is transferred allows a business to be carried on independently.
What this means for you
In our view it cannot be inferred from this order that the Court considers the sale of new let buildings by a developer to be the transfer of a going concern. Both the referring court's questions and the answers are framed too generally for that conclusion.
Nor does this case concern a new building, but an old one. If the developer built the shopping centre itself, as appears to be the case, it must have let the centre itself for more than two years before the transfer. It will then have used it as a business asset on a lasting basis, which makes the facts different from those in the 2018 and 2022 cases.
Because the Supreme Court has yet to rule in those 2022 cases, developers transferring new let buildings would still be well advised to object to the VAT paid or to the assessment raised, in order to protect their position.