Short-stay exception applies to a one-year holiday home let

The District Court of Gelderland held that a holding company letting a holiday home to its director for a year can still rely on the property decree. Actual occupation is what counts.

On 17 January the District Court of Gelderland ruled in a case in which a holding company let a holiday home to its managing shareholder. The inspector took the view that there was no short-stay letting and raised an assessment for the VAT deducted on the renovation costs. The company relied on the property decree, and the court held that it had rightly deducted the input VAT.

The law and the case law

Letting immovable property is exempt from VAT. Short-stay letting is defined in the Dutch VAT Act as short-term letting within the hotel, guesthouse, camping and holiday accommodation sector, and is excluded from that exemption, with the reduced rate applying instead.

That exception must be interpreted consistently with the directive. What is decisive is whether the accommodation is equipped for short stays without the temporary occupant bearing responsibility for the furnishings.

The court assesses whether the letting is similar to that by a hotel or holiday business, and therefore whether there is competition with that sector. That is usually the case with accommodation equipped for short stays where the tenant is not responsible for the furnishings. Here the position differs: the tenant and the director-owner of the letting company are the same person, so the distinction between tenant and landlord is blurred and the question of who bears the cost of the furnishings carries no weight.

On the law and the case law, then, there is no similar letting and no competition. The letting is exempt and the VAT on the renovation costs is not deductible.

The property decree

National legislation contains no criterion for establishing when a stay is short. The State Secretary has set out a position in the property decree:

Accommodation in the hotel, guesthouse, camping and holiday accommodation sector means accommodation that the landlord lets to guests furnished and equipped. The nature and duration of the stay determine whether it is a stay for a short period. Where guests in fact stay no more than six months in that accommodation and do not move the centre of their social life there, there is at any rate a stay for a short period. Where the letting is for longer than six months, the burden is on the landlord to make it plausible that there is nevertheless a stay for a short period.

The company relied on that text. Although the property was at the tenant's exclusive disposal for a full year, he in fact stayed there for 32 days. Because the property served as a holiday home, the centre of his social life did not move there.

The inspector argued that actual occupation is irrelevant and that the lease governs, under which the property was allocated exclusively to the tenant for a year.

The ruling

The court held that, viewed objectively, the text of the decree must reasonably be read as making the duration of actual occupation decisive, even where there is a longer exclusive lease of a property without a holiday designation. It found it plausible that the tenant had in each case stayed only briefly.

The company therefore made it plausible that, despite a one-year lease, the letting was short-term. On the law and the case law the requirements are not met, but the company may rely on the favourable policy and deduct the input VAT on the renovation costs.

Why this matters in practice

The ruling shows that there can be short-stay letting even where a lease runs for more than six months. That reading offers opportunities for holiday home owners. The tax authorities do still have the option of appealing.