Case law affecting real estate developers

Building plot – undeveloped land (1)

A building plot (bouwterrein) is defined as "undeveloped land that is (apparently) intended to be developed with one or more buildings". On 9 February 2024, the Dutch Supreme Court ruled that a plot of land with a 96-meter-long wall qualified as "undeveloped land" for Dutch value added tax (VAT) purposes because the wall was, according to the Supreme Court negligible (verwaarloosbaar) compared to the rest of the undeveloped land.

In the judgment, the Supreme Court followed the following step plan to determine whether a property (with one or more "old" buildings thereon) can be regarded as "undeveloped" or not:

1. Does the undeveloped land belong to or serves the "old" building(s) (that is, the wall)? If so, the whole plot should be regarded as developed.
2. If not, should the "old" building(s) be regarded as negligible? If so, the whole plot should be regarded as undeveloped.
3. If not, qualifies the transfer of the "old" building(s) and the undeveloped land as one transfer or should they be regarded as separate transfers for VAT purposes? For this last step, it has to be taken into account that one delivery should not be artificially separated for VAT purposes.

If land qualifies as "undeveloped", it should be demonstrated that the land is intended to be developed with one or more buildings to qualify it as a building plot. Whether there is a building plot for VAT purposes is of major importance from a VAT and real estate transfer tax (RETT) perspective. Therefore, this judgment offers a welcome step plan for the qualification of land for VAT purposes.

Building plot – undeveloped land (2)

On 20 February 2024 (so after the Dutch Supreme Court case described above) the Court of Appeal Arnhem-Leeuwarden ruled that 18 plots of land, with concrete slabs and sewerage, qualified for VAT purposes as 'undeveloped land'.

The Court held that the nature and size of the construction was so small in relation to the size of the property (i.e. 12%/13% or less of the total surface) that it should be considered negligible (see step 2 of the Supreme Court ruling above). On top of that, the concrete slabs could be removed very easily and within a short period of time. Lastly, the Court held that the concrete slabs and sewerage could not be of service to the new building.

Building plot – undeveloped land (3)

On 30 April 2024 the Court of Appeal Arnhem-Leeuwarden ruled that land with a jointly owned paved road qualified for VAT purposes as developed land. This because the road could not be regarded as negligible (albeit that it covered only 7.4% of the total area), and a split transfer would be regarded artificial as the plots could not be properly used without also using the paved road.

This ruling seems to contradict with the ruling of 20 February 2024 of the same Court (see above). It could be that the decisive factors are that the remaining construction was easily removable and had no longer any function, while in the other situation, the paved road served the plot of land, but that is currently still unclear.

The above rulings show that despite all the case law, there is still a lot of debate between taxpayers and the Dutch tax authorities about how the term 'undeveloped land' should be interpreted in practice.

Transfer of going concern (37d)

On 17 May 2022, the Court of Appeal Arnhem-Leeuwarden ruled in two cases that the transfer of leased-out real estate by a project developer qualifies as a transfer of going concern (within the meaning of article 37d of the Dutch VAT act) for Dutch VAT purposes. As a consequence, the transfer was not subject to Dutch VAT although the real estate was newly constructed and "normally" VAT taxed. This is important as the real estate (in both cases) was leased-out exempt from VAT, meaning that the purchaser could not recover the input VAT due on such a transfer. As a result, the VAT burden for the purchaser was limited to the non-recoverable VAT on the construction and land costs, and not to the non-recoverable VAT on the purchase price. The Dutch state secretary for finance appealed to the Dutch supreme court.

On 17 May 2024, the advocate general at the Dutch Supreme court published her opinion (and a separate annex) in which she confirms the rulings of the Court of Appeal Arnhem-Leeuwarden. She notices that, to qualify as a transfer of going concern, it is of importance that, viewed objectively:

• the lease of the real estate in itself is aimed at obtaining a sustainable return; and
• in the context of the continuation by the purchaser, all items necessary for the continuation of the business are transferred.

For project developers that develop real estate for VAT-exempt purposes (for example, financial institutions, residential use or education) this outcome has a great VAT impact.

It is currently unclear when the Dutch Supreme Court will deliver its judgment but we will follow this closely.