A care home for people with intellectual disabilities is building a new complex with production areas. In these areas, clients make goods for sale, such as birdhouses, bags and bakery products. They also provide services to third parties, such as packaging work. The institution wants to fully deduct the VAT on the construction costs.
Inspector: mixed use
The inspector does not go along with full deduction. The production rooms are used not only for taxed sales but also for clients' day care. That day care is an exempt service for which the institution receives compensation from public funds. Thus, there is mixed use. The inspector therefore allows only 4% VAT deduction, calculated according to the ratio between taxed and exempt sales.
Court: inspector legally right
The court ruled that the inspector was legally right. However, in 2007, the institution asked the Inland Revenue to confirm its practice. In doing so, it sent along an overview of all its locations with the deduction percentages applied. For the production locations, it used 100% deduction. In 2009, the Inland Revenue conducted an audit. The audit report stated, "Based on the above specifications and the figures presented, the applied percentages are allowed until further agreement if circumstances remain unchanged."
Agreement also applies to new complex
The court upheld the reliance on the principle of legitimate expectations. Relevant for this judgement is that the activities have not changed since 2009. The only difference is that the production sites are now merged into one new complex. The court rejects the inspector's contention that the agreement from the book review does not apply to new buildings. If the inspector had wanted to prevent the agreement from applying to new investments, he should have made a clear reservation. He did not do so and, besides, the agreement was never terminated. The institution may therefore deduct in full the VAT on the construction costs of the production rooms.