The Court of Justice of the European Union (ECJ) recently published a judgement that is likely to have a substantial impact on the real estate sector in Belgium (ECJ, Property Development Company NV v Kingdom of Belgium, 23 April 2015, C-16/14).
The ECJ had been requested whether, in case a deemed supply has to be performed in respect of real estate, interim interests should be included in the cost price calculation of the fictitious taxable amount upon which VAT should be calculated. Such a deemed supply for example needs to be performed in case a professional constructor starts to rent a building that was initially destined to be sold with VAT.
The ECJ however pointed to the provision of the VAT Directive stating that the taxable amount in case of deemed supplies should be “the purchase price of similar goods determined at the time of the supply”. Only if no purchase price of similar goods is available, a taxable person is entitled to fall back on the cost price to determine the taxable amount of deemed supplies.
The ECJ therefore stated that the fictitious taxable amount should be the sales price of similar buildings in the market at the time the deemed supply takes place, taking into account criteria such as location, size, and essential characteristics of said building(s).
In practice, it seems to imply that every time a new building could not be given a VAT destination such as a sale or the granting of rights in rem subject to VAT (at the latest within the period of its being new for VAT purposes), despite a previous deduction of the VAT borne on its construction costs, a professional constructor will have to find comparable sales in the area and convince the VAT authorities of the relevance of his comparison. Not only does that imply a substantial administrative burden and less legal certainty, but it also undoubtedly increases the fictitious taxable basis subject to VAT by imposing a calculation based on (be it deemed) turnover rather than on costs.
Whether the Belgian VAT authorities will react to this judgment and publish practical guidance on e.g. past fictitious supplies or on how a taxable basis can convincingly be substantiated for VAT purposes remains to be seen. Should you be concerned about this issue, please contact our VAT experts Benoît Pernet (Tel.: +32 2 708 39 28) or Veerle Coussée (Tel.: +32 2 708 37 15).