Supreme Court clarifies the essentially new build test

Only changes to the structural construction can justify the conclusion that renovation has produced a new building. The Supreme Court thereby adopts the structural approach.

Uncertainty about how to apply the test

The essentially new build test caused a good deal of uncertainty in practice, above all about which sub-criteria determine whether it is met. Is what has happened structurally decisive, or is this an open norm in which weight also attaches to external changes, to changes in how the building can be used and to the cost of the conversion?

Commentators disagreed, and the lower courts ruled inconsistently. The Dutch Tax Administration was reluctant to take a position in advance, leaving developers without the certainty they wanted about the VAT and transfer tax consequences of a conversion. For them that is unwelcome.

In the Wollenstoffenfabriek case the Advocate General advised the Supreme Court that the test cannot and need not be given more concrete content and should remain an open norm. For the property sector that was a disappointing opinion. The District Court of Zeeland-West-Brabant recognised as much and referred questions to the Supreme Court earlier this year about how the test applies, and in particular about the weight of the sub-criteria: changes to the structural construction, external changes, change of function and the level of costs.

The ruling

The Supreme Court has answered those questions. In a clear judgment it holds that only changes to the structural construction, including replacement of part of it, can justify the conclusion that a conversion is so far-reaching that a new building has arisen. Whether those changes are that far-reaching must be assessed on the circumstances of the case.

That reading means the test is not easily met. Other factors, such as a change of function, structural identity and external recognisability, the scale of the investment and the added value created, can be indications that a conversion was structurally that far-reaching, but they are not necessary and, individually or together, not decisive.

The Supreme Court thereby adopts what is known as the structural approach, a decision we endorse. The doctoral thesis "Property transactions in European VAT" (2021) already argued that the Supreme Court's case law implicitly showed that what has happened structurally is decisive.