CJEU rules that the sale of land can lead to 'VAT entrepreneurship' even if development outsourced
Published on 8th April 2025
The decision has tax implications for individuals, developers and investors and underlines the need for clear agreements
The Court of Justice of the European Union (CJEU) has handed down an important judgment in the Polish Grzera case (C-213/24) that provides frameworks for economic activity and value-added tax (VAT) entrepreneurship when private persons sell private land – in this case agricultural.
The ruling on 3 April found that, even if the whole development is outsourced, this type of sale, under certain circumstances, leads to VAT entrepreneurship. The CJEU decision could have far-reaching tax consequences for both private individuals and developers.
The Grzera case
In Grzera , a married couple owned several plots of agricultural land obtained in 1989. In 2011, they decided to sell these plots and entered into a mandate agreement to this end with a professional entrepreneur who acted as their agent. The agent was instructed to carry out preparatory work to optimise the sale of the plots.
The work included:
• Division of the plots into smaller plots and taking the necessary steps to amend the entries in the property register and land registry.
• Change of the designation of the plots in the local zoning plan, from agricultural land to building land.
• Purchase of an additional plot to construct internal roads and access roads to the individual plots.
• Construction of utilities for the property.
• Removal of elements incompatible with the intended use of the plots.
• Obtaining required licences from competent authorities.
• Advertise the plots to potential buyers.
• Preparation of necessary documents with a view to signing notarised sale deeds.
In its judgment, the CJEU gave some important considerations for the classification of a VAT entrepreneur in relation to private assets such as private land.
'Economic activity' defined
The judgment gave a broad definition of "economic activity" when selling building land. According to established case law, the concept of economic activity must be interpreted broadly. If an owner has actively taken steps for the sale of real estate by deploying resources comparable to those of professional entrepreneurs in the real estate sector, such as preparing plots of land for construction and proven sales techniques, this justifies the qualification as a VAT entrepreneur.
As these initiatives do not normally fit with the management of a private asset, the resulting actions cannot be considered as the mere exercise of the right of ownership. Rather, the initiatives fit with an activity carried out with a view to obtaining sustainable revenue from it and can therefore be classified as economic, as established in Słaby and Kuć (C-180/10).
Independence of activity
In order to determine whether an economic activity is carried out independently, it should be ascertained whether the persons concerned carries out the activities in their own name, for their own account and under their own responsibility – and whether they bear the risk associated with those activities
Independent professional entrepreneur
While the circumstance in which a professional entrepreneur acts as an agent and performs most of the selling steps will reduce the economic risk for the owners, it does not preclude them from having performed an economic activity independently.
The ultimate economic risk in case of a non-sale will rest solely with the owners, unless otherwise agreed.
Relevance to practice
This ruling is relevant for private individuals and for developers and investors. The qualification as a VAT entrepreneur and the possible qualification as a building plot results in a completely different tax treatment – that is, in principle subject to VAT and exempt from real estate transfer tax – than the sale of land as non-entrepreneur, that is in principle no VAT and subject to real estate transfer tax).
In situations where VAT is a cost item – for example, residential developments – this can be disadvantageous because the VAT rate of 21% is higher than the real estate transfer tax (RETT) rate of 10.4%. But in many cases it may be tax advantageous because of the developer and end investor's right to deduct VAT which results in no VAT leakage and no RETT cost.
That this is relevant has been demonstrated in several recent proceedings before different courts: Rechtbank Noord-Holland of 9 January 2024, Rechtbank Noord-Holland of 8 May 2024 and Rechtbank Den Haag of 10 February 2025.
Besides the VAT discussion for private individuals, there is also discussion around being an entrepreneur andresult generator or normal asset manager.
Osborne Clarke comment
The Grzera judgement provides important insights on what constitutes qualification as a VAT entrepreneur when selling private land. The CJEU made it clear that organised and active steps for the sale of land, even when outsourced and carried out by a professional entrepreneur such as a developer, can for the owners lead to qualification as a VAT entrepreneur.
This can have far-reaching tax implications for private individuals, developers and end investors developing similar projects. It underlines the importance of proper and clear agreements in advance on what may and may not be done to avoid, or indeed obtain, VAT entrepreneurship.
At Osborne Clarke, we specialise in real estate taxation. If you are now in such a situation yourself, we will be happy to assist you.
