A self-storage unit lettings company wishes to deviate from the general rule for calculating the pro rata VAT. Amsterdam Court of Appeal rules that the landlord has not sufficiently demonstrated that the actual usage deviates from the allocation formula based on turnover ratios. The Supreme Court finds that the grounds of appeal raised in the appeal on points of law against the Court of Appeal’s judgment do not raise any issues that need to be determined in the appeal on points of law.
Pro rata VAT
The VAT paid by a trader on goods and services purchased is deductible if, and to the extent that, these goods and services are used for VAT-taxable supplies carried out by the trader. Transactions not subject to VAT may include VAT-exempt transactions, as well as non-economic transactions. In the present case, the landlord is involved, on the one hand, in VAT-taxable lettings to businesses that carry out 90% or more taxable transactions and, on the other hand, in VAT-exempt lettings to private tenants.
The allocation rules are as follows:
- VAT on goods and services used exclusively for taxable transactions is fully deductible;
- VAT on goods and services used exclusively for non-taxable transactions is not deductible at all;
- VAT on other (general) costs is deductible under the pro rata scheme.
Under the pro rata scheme, VAT is deductible in the following proportion: turnover subject to VAT / total turnover.
Exception
This is the general rule. The pro rata rule may also be applied on the basis of the actual use of the goods and services purchased. If the trader makes this claim, they must substantiate it. Should the Tax and Customs Administration take this view, it must substantiate it.
It must be demonstrated that the actual use of the goods and services purchased, taken as a whole in relation to all general expenses, does not correspond to the input tax deduction based on the turnover ratio. The Court of Appeal ruled that the landlord had failed to do so.
The landlord initially wishes to calculate the pro rata arrangement on the basis of the square metres of floor space let. The landlord argues that the layout of the premises is primarily geared towards commercial tenants, which entails higher costs. Commercial tenants are said to visit more frequently, and the building’s layout and facilities are tailored to commercial tenants (including, amongst other things, a drive-through facility). Facilities such as meeting rooms are used more frequently by business tenants. The Court ruled that the landlord had not demonstrated that a calculation based on square metres provides a more accurate picture of the allocation of its general costs.
Before the Court of Appeal, the private limited company argues that the pro rata arrangement must be calculated on the basis of the data from the access control system. The Court of Appeal rules that, even on that basis, it is not possible to determine the actual use of the overheads with sufficient objectivity and accuracy.
Tricky
These rulings confirm once again that, in practice, it is extremely difficult (perhaps even almost impossible) to use a basis other than the turnover ratio when calculating the pro rata arrangement for VAT.