Interest on a escrow account leads to a pro rata deduction limitation

• The Amsterdam Court of Appeal ruled that the interest received by X for money in the escrow account qualifies as exempt turnover, but X must make a pro rata calculation for VAT deduction.
• X provides notarial services and has an escrow account, receiving interest for the credit on the third-party funds account.
• The inspector initially stated that the interest received qualifies as exempt turnover and X must apply a pro rata calculation.
• The court agreed, stating that there is a close connection between X’s economic activity and the provision of credit, and therefore, X must make a pro rata calculation in which the interest counts as exempt turnover.
• The imposed default fine will be annulled.

Source Taxlive

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