The answer to this question is usually: yes. But not always. This is evident from a recent ruling of the Supreme Court.
Costs passed on
The judgment concerns a pension fund (Stichting X), which decided to transfer its pension portfolio to a larger pension fund. The costs incurred by Stichting X in connection with this are reimbursed, without any profit margin, by the group for which Stichting X administered the pension scheme. These are costs that Stichting X must incur in its own name and at its own expense in connection with the transfer of the portfolio.
A pension fund carries out activities that are exempt from VAT. Consequently, a pension fund is not permitted to deduct the VAT charged on services it purchases. However, Foundation X argues that the costs it passes on to the group must be charged with VAT (the group will undoubtedly be entitled to deduct this VAT). On the basis of the services thus charged with VAT, Foundation X claimed a VAT deduction on the services it had purchased.
Performance
VAT is charged on a supply consisting of:
- the supply of goods or services;
- in return for a sum of money (or consideration in kind).
Foundation X must prove that a supply has been made in respect of the costs passed on. To this end, X invokes the general rule of evidence in VAT law, which states that the starting point is that payments made by a trader constitute consideration for a supply (and are therefore subject to VAT).
However, the Supreme Court has ruled that merely referring to this rule of evidence is not sufficient to substantiate the right to deduct VAT. Foundation X must prove that it has provided services to the group in return for the costs passed on. The Supreme Court has referred the case to the Court of Appeal in ‘s-Hertogenbosch to examine the extent to which this burden of proof has been met.
Chameleon
In general, the Tax and Customs Administration takes the view that costs passed on must be subject to VAT. This often concerns situations in which the VAT charged on these costs cannot be deducted. For example, when the costs are passed on to a business that provides VAT-exempt services (including in the medical sector and education).
In the case described in this article, the situation is the other way round. Foundation X argues that the costs passed on are subject to VAT, which entitles it to a VAT deduction. As is often the case in tax law, the Tax and Customs Administration adapts its position like a true chameleon and takes the view that the costs passed on are not subject to VAT.
We are looking forward with interest to the ruling on the reference from Den Bosch.