VAT-registered businesses may deduct VAT on services purchased. This is permitted provided that those services are used for VAT-taxable transactions carried out by the business. In addition, a valid VAT invoice must be available.
Exclusion from deduction
The purpose of VAT is to tax the use or consumption of goods and services. An end user, usually referred to as a private individual, is therefore not entitled to claim a VAT deduction.
However, there are also situations in which this end use takes place within the business. In such situations, a VAT-registered business is still not permitted to deduct the VAT payable on the purchase of such supplies. This applies to:
- VAT is levied on the supply of food and drink in a catering establishment to persons staying there for a short time (“VAT on the hospitality sector“);
- the application of the Decree on the Exclusion of VAT Deductions (BUA).
Horeca VAT
The VAT you pay when you go out for a meal with a client, have a drink with your staff in a pub, or attend a party at a catering establishment is not deductible. Only the VAT on food and drink, as well as services directly related to these, is non-deductible. This exclusion from deduction is laid down in the law; it is not set out in the BUA. The efficiency threshold mentioned below therefore does not apply; VAT on hospitality services is, in principle, never deductible.
If you hire a caterer to organise a staff party or anniversary celebration at your business premises, there is a good chance that your business premises will be regarded as a catering establishment for the purposes of this event. In that case, the VAT on the food and drink provided is not deductible.
For example, if you buy sandwiches for a lunch meeting or pizza because of overtime, this does not constitute non-deductible catering VAT. The same applies to coffee, tea and so on provided at the office. After all, these items are not consumed in a catering establishment. However, the BUA does, of course, apply to these purchases.
BUA
The BUA relates to purchased goods and services that are used within the company for the purpose of:
- maintaining a certain state;
- giving promotional gifts or making donations (where the recipient would not have been able to deduct VAT had he or she purchased the goods or services themselves);
- providing the employer’s staff with wages in kind.
An efficiency threshold of €227 applies to both of these last categories. As long as the total cost of benefits in kind per employee (or per beneficiary) in a calendar year amounts to less than €227, the BUA is not applied (and VAT is deductible).
The BUA has specific regulations governing the provision of food and drink from a staff canteen. For the purposes of these regulations, a facility is generally considered to be a “staff canteen”.
Special needs
In 1997, the European Court of Justice ruled in the case known as Fillibeck The well-known judgement rules that the right to deduct VAT may not be restricted where the employer is compelled to incur the expenditure due to the business’s specific needs.
The application of this judgment has recently been raised in a case before Arnhem-Leeuwarden Court of Appeal. This concerns accommodation for foreign agency workers. The agency accommodates these people in hotels, guesthouses and holiday homes near their place of work. The provision of accommodation is mentioned in the BUA. The Tax and Customs Administration therefore refuses to allow a deduction for the VAT incurred on the procurement of accommodation for the temporary workers.
The temporary employment agency takes the view, partly on the basis of the Fillibeck case, that the VAT is indeed deductible. The accommodation costs primarily serve the agency’s business interests exclusively. However, the Court of Appeal ruled, in line with the District Court, that the temporary employment agency had not sufficiently demonstrated that exceptional circumstances compelled it to arrange and bear the costs of accommodation for the foreign workers. The Court of Appeal considers that the workers themselves choose to work for the agency. Furthermore, they have the choice as to whether or not to make use of the accommodation arranged by their employer.
An important lesson from this ruling is that, as a VAT-registered business, you must make every effort to substantiate your VAT deduction. The burden of proof that exceptional circumstances apply rests entirely with you. In this case, the business owner should perhaps have placed much greater emphasis on the fact that, whilst the employees may have had a legal right to opt out of using the accommodation, this never happens in practice. In addition, the employer could perhaps have invoked requirements under employment law.
In 2015, it was decided Amsterdam Court of Appeal The same applies to the deduction of VAT on sandwiches consumed during a firm’s professional consultation with lawyers, notaries and tax advisers. The party concerned did not invoke the Fillibeck case in this matter. However, the Court of Appeal ruled of its own motion that it would not have allowed the deduction on the basis of Fillibeck either.