On 9 March 2012, the Dutch High Court came to a judgment in a case about the possibilities for charging VAT on the short-term letting of halls, in cases without a formal request and where the tenant does not have a certain right to deduct VAT. There were several exceptions to the approval, which meant that some entrepreneurs with predominantly VAT exempt activities, but also theaters, church clubs and city halls, could not make use of this approval to charge VAT. The High Court has now seemingly removed these exceptions, so that the approval can also be applied to the cases mentioned above. More information and background can be found in the alert attached.
Expansion of the approval for VAT on short-term letting of halls
The letting of immovable property is, in principle, exempt from VAT. One can choose to charge VAT if the tenant uses the rented space for activities for which he has a right to deduct at least 90% of his VAT (in some cases 70%). There is an approval which states that the short-term letting of conference, meeting or exhibition spaces can conditionally be charged with VAT, even if the tenant does not meet the requirement of having sufficient right to deduct VAT. Such spaces also include halls for example for weddings, receptions, etc. If the entrepreneur states clearly (on his pricing list) that the letting is charged with VAT, then the VAT charge is a fact. The advantage of this is that there is a right to deduct VAT for the entrepreneur, often improving his VAT position compared with letting the space without VAT. Short-term in this case means a space which is let out for a day or part of a day for example. In the approval, the Secretary of State has however stipulated a few exceptions. The approval for example does not apply to entrepreneurs who normally perform VAT exempt activities and also not to churches, town halls or theaters.
Letting of immovable property or more comprehensive services?
The Court had to decide on the case of a housing corporation that was also involved in the short-term letting of spaces (for events such as conferences, weddings, fashion shows, receptions, dinners, concerts or presentations). The housing corporation was of the opinion that the letting of halls was not the VAT exempt letting of immovable property but rather a more comprehensive VAT-taxable service. This is because they provided several services such as catering, the provision of materials rented from a third party and providing a porter. The Court of First Instance and the Court of Appeal had both rejected this position. This led the housing corporation to appeal to the High Court.
Judgment of the High Court
On 9 March 2012, the High Court came to their judgment in this matter. In this regard, the High Court does not further contemplate the position taken regarding the more comprehensive services. They ‘assume’ the decision by the lower courts, stating that this is a case of letting and not a case of more comprehensive services, to be correct. The High Court does this in order to be able to go into more detail regarding the housing corporation’s second point, namely that the approval for the short-term letting of halls applies to her, notwithstanding the fact that the housing corporation predominantly provides services that are exempt from VAT.The position taken is that there is no justification for the different treatment of the housing corporation compared with other entrepreneurs who provide VAT-taxable services (e.g. a café owner who lets out a function room). So they are appealing on the grounds of equality. The High Court agrees with this and has as such widened the reach of the approval.
The question is how far this judgment will apply in practice. It is obvious that the short-term letting of halls by entrepreneurs who predominantly provide VAT-exempt services can make use of the approval. However, the High Court also considers that the Secretary of State’s arguments for justifying non-equality (the VAT deduction right that follows from the approval) is not founded, because this is exactly the essence of the approval. Therefore, we are of the opinion that the other exceptions (theaters, village halls etc) are also not justified. This means that these types of entities can also let halls on a short-term basis to third parties, with VAT, without the need for a separate VAT option. This could be very advantageous to these entities. It is however not possible to establish whether the inspectors around the country will also follow this point of view or whether they will follow the literal text of the decision with regard to the entities in the exception.
Will the decision hold?
Although the Secretary of State is now confronted by his exception(s) that will not hold, it seems to us that the overall decision will stand. This is because the decision came about after an agreement by the Secretary of State to the Dutch House of Representatives upon the introduction of the anti-misuse rule in the mid ‘90s, in which the requirement of the 90% deduction right of the entrepreneur was introduced. A full retraction of the decision would therefore be a restriction on the approvals made earlier and could mean difficulties for many smaller entrepreneurs who let spaces. However, there is no certainty on this point and the Secretary of State has no legal requirement to uphold this approval.
TECHNICAL INFORMATION CONTACTS:
Suzanne C. den Breems
+31 (0) 72 540 1202