Sale of building plots after ending farming activities

A grower received residential building plots as compensation for demolishing his business premises. The Court of Appeal in 's-Hertogenbosch held that he sold those plots as a taxable person, and therefore owes VAT.

The facts

The taxpayer runs a sole trader business from business premises, growing and selling tomatoes. A change to the zoning plan for the area means that any application to expand or modernise the premises will be refused, while demolition of business buildings is encouraged.

Against that background he entered into an agreement with the municipality in 2012, undertaking to demolish his business premises. As compensation he received both a financial payment and the right to be allocated nine residential building plots.

Tomato growing ceased in 2011. From 2012 he leased the greenhouses to third parties, until 31 October 2024, and ran a farm and regional produce shop in the business premises. Between 2016 and 2018 he sold the building plots. The dispute is whether he acted as a taxable person in doing so.

He argued, in short, that the sale did not take place in the course of his business but as an investment, that the plots were private assets, and that these were one-off transactions.

The court's ruling

The Court of Appeal held that after ending tomato growing he continued his business through the premises with three activities: leasing the greenhouses, running the shop, and the transactions relating to the residential plots.

Those last transactions flow from the agreement, under which it was settled in advance that he would receive plots as compensation for demolition. Without owning the business premises and demolishing them, they would not have come about. Where the taxpayer sees a one-off transaction, the court sees three interconnected business activities: through them he exploited the economic opportunities that ownership of the premises offered.

Accepting the building right as compensation also meant he had to take active steps to exploit it. He acquired a parcel of land, divided it into plots and supplied them as residential building plots. In those circumstances the supply qualifies as a transaction in the course of his business, leaving no room to treat the plots as private assets.

What this means in practice

The ruling shows that in assessing taxable person status, all of a taxpayer's economic activities must be viewed together. The various transactions can be interconnected, so that taxable person status extends to all of them and VAT is due accordingly.