12 March 2024
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VAT Building Site in Case of Partial Demolition

At the beginning of February, the Supreme Court 1 provided an overview of the steps that must be followed when determining whether a VAT building site is involved. A ruling by the Arnhem-Leeuwarden Court of Appeal was published 2 earlier this month, in which the court elaborates on the factual assessment required for the steps outlined by the Supreme Court.

The Supreme Court considered a case involving a plot of land that had a 2.4-metre-high wall of about 100 metres in length and a foundation of approximately 100 square metres but was otherwise undeveloped. The question was whether or not this qualified as a VAT building site. In its ruling, the Supreme Court stated that the following questions must be answered consecutively:

  1. Do the existing structures qualify as buildings or constructions within the meaning of VAT law?
  2. Does the undeveloped part of the plot qualify as associated land of the existing construction?
  3. Should the construction as a whole be considered negligible in relation to the undeveloped land? Otherwise, the transaction is split into a VAT-taxable and a VAT-exempt part.

1
In this case, the Supreme Court agrees with the factual judgement of the Court of Appeal that the wall qualifies as construction for VAT purposes. The Supreme Court conducted only a limited review, assessing whether the Court of Appeal’s factual judgment was a reasonable interpretation of the concept.

2
The Supreme Court considers that the undeveloped area qualifies as associated land if, according to societal views, it belongs to or serves the construction. Based on the established facts, the Supreme Court concludes without further explanation that this is not the case. In this situation, with a wall as the only structure, further explanation seems unnecessary.

3
The Supreme Court finds that the size of the wall relative to the total size of the plot is negligible, making it a VAT building site. In the assessment, not only the size of the wall is relevant but also the surface area of the plot. However, the Supreme Court’s ruling does not specify the total area of the plot. The earlier ruling of the Court of Appeal states that a factory building was previously located on the plot and that there was an intention to build twelve single-family homes on it. Therefore, the plot must have been of a considerable surface area.

Referring to the Supreme Court’s ruling, the Arnhem-Leeuwarden Court of Appeal concludes in the other case that a concrete slab and sewage system covering 13% of the plot’s surface area are negligible. The Court of Appeal also notes that the foundation remnants and sewage system can be easily removed.

Although the Supreme Court’s ruling does not represent a new direction in case law, it provides a clear overview of the relevant questions. Together with the Arnhem-Leeuwarden Court of Appeal’s ruling, it underscores the need to be aware of the tax implications of (partial) demolition.

Dudok is happy to assist you in assessing whether a plot of land with or without structures qualifies as a building site for VAT purposes.

  1. Supreme Court, 9 February 2024, no. 21/02407, ECLI:NL:HR:2024:216 ↩︎
  2. Arnhem-Leeuwarden Court of Appeal, 20 February 2024, no. 21/1700, ECLI:NL:GHARL:2024:1283. ↩︎

Due to new case law and legislative changes, the above may be outdated at the time of reading. We advise you to stay informed about the current state of case law and legislation, and we are happy to assist you with this. .