The Gelderland District Court has ruled that the pro rata allocation for VAT must be determined on the basis of turnover.
Pro rata
The pro rata fraction is used to determine what proportion of VAT is deductible on costs that are used for both VAT-taxable and VAT-exempt supplies. The general rule is that this fraction is calculated on the basis of turnover in euros (the turnover method). The ratio is then calculated as follows: taxable turnover (€) / total turnover (€). Where there is a general rule, there is, of course, also an exception. Where a ratio other than turnover in euros better reflects the extent of use, that other ratio may be applied. Anyone claiming that a different ratio better reflects the extent of use bears the burden of proof.
Solar panels
The case before the Gelderland District Court concerns a case in which the owner of 28 residential flats lets out the roof of this residential complex for the installation of solar panels. The letting of the residential flats is exempt from VAT. The letting of the roof is subject to VAT.
The question is what proportion of the VAT payable on the purchase of the residential complex may be deducted. The owner states that the roof area accounts for 24.83% of the total area of the residential complex. On that basis, he claims a deduction of 24.83% from the purchase VAT. The Tax and Customs Administration takes the view that the ratio between the taxable rent from the solar panels and the total turnover (the exempt rental income from the 28 flats plus the taxable rent from the solar panels) must be taken into account. This naturally results in a much lower deduction than 24,83%.
The Court ruled in favour of the Tax and Customs Administration because the owner of the complex had not demonstrated that the actual use of the complex as a whole was inconsistent with a deduction based on the turnover method. When allocating the costs to the roof, the owner has failed to take into account the fact that the roof also serves to enclose the complex (serving as a surface for the solar panels is not the roof’s sole function).