On November 19, 2009, the ECJ issued its decision in the case C-461/08 (Don Bosco Onroerend Goed BV)
Context: Sixth VAT Directive – Interpretation of Articles 13B(g) and 4(3)(a) – Supply of land occupied by a partly demolished building in place of which a new building is to be constructed – VAT Exemption
Article in the EU VAT Directive
Under Article 2(1) of the Sixth Directive, ‘the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such’ is subject to VAT.
Article 4(3) of the Sixth Directive provides that:
- ‘Member States may also treat as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in paragraph 2 and in particular one of the following:
- (a) the supply before first occupation of buildings or parts of buildings and the land on which they stand; Member States may determine the conditions of application of this criterion to transformations of buildings and the land on which they stand.
- Member States may apply criteria other than that of first occupation, such as the period elapsing between the date of completion of the building and the date of first supply or the period elapsing between the date of first occupation and the date of subsequent supply, provided that these periods do not exceed five years and two years respectively.
- “A building” shall be taken to mean any structure fixed to or in the ground;
- (b) the supply of building land.
- “Building land” shall mean any unimproved or improved land defined as such by the Member States.’
Article 13 of the Sixth Directive, headed ‘Exemptions within the territory of the country’, provides:
B. Other exemptions
Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:
(g) the supply of buildings or parts thereof, and of the land on which they stand, other than as described in Article 4(3)(a);
(h) the supply of land which has not been built on other than building land as described in Article 4(3)(b).
6 Subparagraph (b) of the first paragraph of Article 13C provides that ‘Member States may allow taxpayers a right of option for taxation in cases of … the transactions covered in B(d),(g) and (h) above’.
Facts
- In 1998, Stichting Leusderend (‘the vendor’) sold to Don Bosco a plot of land occupied by two dilapidated buildings previously housing a school with boarding facilities (‘the property’).
- Don Bosco planned to have those two buildings completely demolished so that it might then construct new buildings on the land that had thus become available. To that end, it had been agreed that the vendor would apply for a demolition licence, conclude an agreement with a contractor for the demolition of the buildings and be charged the cost thereof. According to the agreement between the vendor and Don Bosco, Don Bosco would bear that cost through an increase in the selling price, except for the cost of removing asbestos, which would be payable by the vendor.
- On 27 August 1999 the municipality of Leusden (Netherlands) granted the vendor a demolition licence, one of the conditions being that the demolition work could not begin until any asbestos in the buildings concerned had been removed.
- Having submitted to the vendor a quotation for the removal of asbestos and the subsequent demolition works on 21 September 1999, the undertaking responsible for those tasks began the work on the morning of 30 September 1999.
- At midday on the same date the property was transferred to Don Bosco. By that time some of the paving between the buildings had been removed, part of the side wall of one of the buildings had been taken down with the help of a hydraulic crane, and windows, frames and brickwork had in part been demolished and destroyed.
- Work to remove asbestos did not begin until after the property had been transferred and it was only after that work was finished that demolition of the buildings continued. Thereafter, new office buildings were constructed on that plot of land, to the order and on behalf of Don Bosco.
- Following the acquisition of the property, Don Bosco received an assessment of outstanding transfer duty. The objection lodged against that assessment was rejected by decision of the tax inspector.
- Don Bosco brought an action against that decision, submitting that, in the circumstances, the supply of the property was subject to VAT and that, therefore, it was exempt from transfer duty pursuant to Article 15(1)(a) of the Law on the taxation of legal transactions.
- The Gerechtshof te Amsterdam (Amsterdam Court of Appeal) dismissed the action as unfounded, on the ground that the supply of the property was exempt from turnover tax under Article 11(1)(a) of the Law on turnover tax.
- Don Bosco lodged an appeal on a point of law against the judgment of the Gerechtshof te Amsterdam, claiming that the Sixth Directive and, in particular, Articles 13B(h) and 4(3)(b) of the directive, had to be interpreted as meaning that the supply of the property should be liable to VAT.
- The referring court is unsure whether the supply of a building partly demolished with a view to the construction of a new building in its place still constitutes the supply of that old building, first occupation of which occurred in the past, or whether any supply during the demolition phase of that building or during the construction phase of the new building must be considered to be a supply of the building before its first occupation.
- In this respect, the national court refers to the principle of VAT neutrality and points out that making the supply of a property that takes place after demolition of the old building has begun but before first occupation of the new building has occurred liable to VAT would result in the VAT charged on that demolition, site clearance and construction qualifying for deduction, so that any supply would be ‘net’ of VAT until first occupation. By contrast, where the supply of land with a completely or partly demolished building is exempt, the VAT due on the demolition would form part of the price of the new building.
- However, according to the national court, the question of VAT neutrality would be less of an issue, or even none at all, when it is the purchaser who gives the order for demolition and is charged the cost thereof, and not the vendor who supplies the property to be demolished. This would be all the more so when it is not the vendor, but the purchaser, who has drawn up the plans for the new building. In such a case, it should be held that the vendor in fact supplies the old building.
See also Taxlive.nl
Questions
AG Opinion
None
Decision
Article 13B(g) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, in conjunction with Article 4(3)(a) of the directive must be interpreted as meaning that the exemption from value added tax provided for in Article 13B(g) does not cover the supply of land still occupied by a dilapidated building that is to be demolished and replaced by a new building and whose demolition, paid for by the vendor, had already begun before the actual supply took place. For value added tax purposes, such supply and such demolition form a single transaction, given that, taken as a whole, the aim of the transactions was not to supply the existing building and the land it stands on but land that has not been built on, regardless of how far demolition of the old building had progressed at the moment the land was actually supplied.
Summary
The supply of a site on which an old building still stands that has to be demolished in order to erect a new building on that site, the demolition of which, for which the seller is responsible, has already started before this delivery, is not covered by the VAT exemption .
Such transactions of supply and demolition constitute, from the point of view of VAT, a single transaction, which, as a whole, is concerned not with the supply of the existing building and its land, but with the supply of vacant land, irrespective of the extent to which the demolition of the old building at the time of the actual delivery of the site has progressed.
Source
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