Publication date: 08/10/2020
On October 1st 2020 the European Court of Justice published its decision in the Belgian case Vos Aannemingen (C 405/19).
The case covers a ‘hot topic’ in the real estate sector where (Belgian) tax authorities often challenge (part of) the VAT deduction of costs such as marketing, administration and broker fees borne by a real estate development company arguing that a 3rd party (in casu the land-owner) also benefits from these services.
Vos Aannemingen is a real estate development company who’s economic activity consists of the construction of (new) apartments. Those buildings are erected on land belonging to third parties (via a right in rem granted by the land-owner to Vos Aannemingen).
This so called ‘split sale’ is common practice in Belgium where the sale of constructions is subject to VAT and the sale of corresponding land (or land shares) subject to registration duties and thus VAT exempt.
Further to the preliminary questions raised by the Belgium Court of Cassation, the ECJ now ruled that:
(1) If there is a direct and immediate link between services supplied and the economic activity of the taxable person, the right to deduct VAT on said cost cannot be compromised due to the fact that a 3rd party derives an ancillary benefit from these services;
(2) In case costs do not relate to the taxable person’s general overheads, but instead maintain a direct and immediate link with that persons ‘taxed’ transactions (in casu the sale of new apartments), the right to deduct VAT on said costs can also not be compromised due to the fact that a 3rd party benefits from these services/costs.
(3) A taxable person who does not on-charge (part of) expenditure incurred to a 3rd party also benefitting from these costs while being able to do so, is only an element to consider when determining the right to deduct VAT in the hands of that taxable person. VAT deduction can only be limited when costs are incurred not in the framework of its taxed transactions but for those of the 3rd party benefitting from these (fail of direct and immediate link test).
Belgian VAT authorities often maintain a very strict approach and tend to de facto challenge VAT deduction on (part of) administration and sales cost incurred by a real estate development company in a ‘split-sale’ structure.
This judgement is very relevant when performing a full VAT deduction right on a.o. advertising, marketing and sales costs when operating under a ‘split sale’ structure as the ECJ did, as a starting point, not disallow full deduction. However, it is clear that all elements will need to be taken into account to defend a full VAT deduction.
We will of course follow up the final judgement in the case at hand by Belgian Court of Cassation based on the ECJ’s judgement.