VAT adjustment for investment services relating to property and the Drebers judgment

For now the government sees no reason in Drebers to change the proposed definition and is sticking to a five-year adjustment period. There is a good deal to be said against that.

On Budget Day 2024 the government announced its proposal to introduce a VAT adjustment scheme for investment services relating to immovable property from € 30,000. In our earlier article we looked at the purpose of that scheme and how it sits with the Court of Justice's judgment in Drebers. An explanatory memorandum to Tax Plan 2025 has since appeared, in which the government addresses the consequences of that judgment.

The Drebers judgment

The judgment makes clear that always applying a five-year adjustment period to investment services relating to immovable property is not permitted. The Court accepts that large-scale renovation work can have economic characteristics comparable to those of immovable capital goods, particularly as regards their long useful life. In the light of fiscal neutrality, such services may therefore not be treated differently from immovable capital goods.

The Court states that businesses may rely before the national courts on the extended adjustment period where the member state has refused to apply it under national rules. For investment services such as renovations whose economic characteristics are essentially equivalent to acquiring immovable property, the Dutch legislature is therefore obliged to apply the extended period of, in short, ten years.

The government's response

In the memorandum the State Secretary for Finance states that Drebers gives no immediate reason to change the definition in Tax Plan 2025. In the government's view that definition still holds up under EU law, and only the courts can settle the point definitively. The judgment will, however, lead to clarification in the accompanying secondary legislation.

The government does not intend to extend the adjustment period from five to ten years. Taxpayers can rely on the judgment directly with the inspector in situations where the extended period applies. The stated aim is to avoid an additional administrative burden.

Criticism of that response

Along with other parties, we responded to the consultation on the implementation in the 2024 year-end regulations and recommended taking another critical look at the scheme.

In our view the statutory definition of an investment service is broader than EU law permits, and it is not clear why the government has chosen the low threshold of € 30,000. It is also striking that the government disregards Drebers when setting the adjustment period, citing the administrative burden. In our view that is not a good reason to enact legislation that is plainly not compatible with the directive from the outset.

Further implementation and other clarifications will follow in an amendment to the 2024 year-end regulations. We continue to follow this legislation closely.