An employment agency deducts VAT on the accommodation of foreign workers, but substantiates this according to Court of Appeal of ‘s-Hertogenbosch insufficient.
The temporary employment agency provides foreign workers to its clients in the installation, construction, metal and painting sectors. The workers live in the EU and their (tax) residence is not transferred to the Netherlands (the worker's family continues to live in the home country). The interested party provides (temporary) accommodation for the employees in the Netherlands in bungalow parks, bed & breakfasts and the like. The employees do not pay for the accommodation. The employment agency deducts the VAT charged on the cost of accommodation.
BUA
The employment agency and the Inland Revenue agree that this VAT falls under the deduction limitation of the BUA (Turnover Tax Exclusion Decree). Indeed, under this decree, among other things, VAT encumbered on goods and services used for providing accommodation to staff or for other personal purposes of staff is not deductible.
Special circumstances
However, the employment agency appeals to a 2020 Supreme Court ruling, which we write about in our article Deduction of VAT on accommodation costs, in which the Supreme Court applied the Court of Justice's Fillibeck ruling. Deduction of VAT on, for example, (temporary) accommodation costs is still allowed if special circumstances force the entrepreneur to incur the costs. The burden of proof, that there are such special circumstances, rests on the entrepreneur claiming VAT deduction.
That is where things go wrong in the case on which the Court of Appeal of ‘s-Hertogenbosch ruled. The temp agency did not sufficiently substantiate the claim, that it did its utmost to find Dutch workers, for the years 2013 and 2014, and for 2012 and 2015, not at all with documentary evidence. Also for the claim that the foreign workers only wanted to come if they were offered free accommodation, the employment agency does not provide sufficient documentary evidence. The Court considered the reference to websites on which the vacancies were posted and contacts with the UWV and municipalities to be too general and indirect to sufficiently substantiate the employment agency's assertions. The results of a survey conducted by the temporary employment agency among foreign workers are also set aside by the court because the survey was not conducted by an independent third party. Moreover, only 15 of the 76 foreign workers surveyed are employed by the temporary employment agency. And these 15 were still employed by the employment agency at the time of the survey, which meant they were in a dependency relationship with the employment agency at that time.
Equality principle
The agency's last straw is to invoke the principle of equality. The VAT charged on hotel stays of employees in connection with attending conferences, courses or visiting clients is deductible. And these would be (very) similar cases to the accommodation of the foreign workers by the employment agency. But even this argument is hardly substantiated by the temp agency and therefore dismissed by the court.