Developer transferring let property to an investor: a totality of assets?
The Court of Appeal in Arnhem-Leeuwarden held in two cases that a developer transferring let property transfers a totality of assets. We doubt that will survive in the Supreme Court.
In 2008 the Dutch Supreme Court held that transferring property in a let state can amount, for VAT purposes, to the transfer of a totality of assets. That arises where a business or an autonomous part of one passes across, with tangible and possibly intangible assets enabling an autonomous economic activity to be carried on, and the transferee continues that activity.
Where the supply of let property amounts to such a transfer, no supply takes place for VAT and the buyer steps into the VAT rights and adjustment obligations. The relief is therefore also known as the no-supply rule.
Investor to investor, and developer to investor
The 2008 ruling concerned a transfer between investors. Does it also apply where a developer transfers let property to an investor?
In 2018 the Court of Appeal in Arnhem-Leeuwarden held that the supply of an office complex developed by a developer for sale, and let by that developer for two weeks before being transferred in a let state to obtain a higher price, was not a transfer of a totality of assets and was therefore subject to 21% VAT. In the court's view this was the supply of an asset forming part of the developer's stock. The court did leave open the possibility of a different outcome where the developer has taken the property out of stock in order to exploit it on a lasting basis itself. The Supreme Court upheld that ruling in 2020 without further reasoning.
Recently, however, the same court held in two cases that transferring a let apartment complex and a let care complex from a developer to an investor was a transfer of a totality of assets, and therefore not a taxable supply. In the court's view it is enough that the let property allows an autonomous economic activity to be carried on, namely exploiting an asset to obtain income from it on a continuing basis.
The court unfortunately does not explain how those rulings sit with its own contrary ruling from 2018, which is all the more striking given that the Supreme Court upheld it in 2020. Fuller reasoning would have been expected. There is no doubt that the State Secretary will appeal in order to remove that uncertainty, and the loss of revenue that goes with it.
What this means
For developers transferring housing or care property in a let state to investors who cannot deduct, these rulings are interesting. Where the price includes costs, the VAT burden is then limited to the non-deductible VAT on the developer's costs, instead of 21% VAT on the higher sale price.
It is too early to celebrate, though. We doubt that these rulings will survive in the Supreme Court. The thesis "Property transactions in European VAT" (2021) argued that a developer's economic activity is that of a producer of property rather than an operator of it, and that in this situation there is no transfer of the wider development activity that the investor continues.
In both appeal cases, where the property was developed from the outset for sale in a let state, this is in our view not the sale of a business asset but of stock. The scheme of VAT also suggests bringing the value added by the developer into charge, because that prevents part of final consumption escaping tax.
Whether the Supreme Court takes the same line remains to be seen. Until then it is advisable to lodge protective objections in good time.