A private limited company purchases a (luxury) flat and lets it to a subsidiary private limited company, which has no employees. The private limited company claims a deduction for the VAT (€295,041) payable on the purchase of the flat. The tax authorities refuse this deduction. Arnhem-Leeuwarden Court of Appeal agrees with that.
General rule: letting = exempt
The general rule under VAT law is that lettings are exempt. The tenant and landlord may opt for a VAT-taxable tenancy, provided that the tenant uses the rented property (virtually) entirely (for 90%) or more for supplies in respect of which the tenant is entitled to a VAT deduction.
The use of immovable property as a dwelling is not a transaction subject to VAT and therefore does not give rise to a right to deduct VAT. The District Court has established that the flat is situated in a block of flats zoned for residential use. Furthermore, upon signing the purchase contract, the private limited company declared that it would use the flat in accordance with that designated use. However, the Court also considers that the actual use of the flat is decisive in determining whether the 90% criterion has been met.
Business use
The subsidiary BV states that its director (and major shareholder) uses the flat for a few days a week:
- when he has to be in the Randstad for business meetings;
- for entertaining business associates;
- as a base for business meetings;
- for overnight stays when he has appointments on several consecutive days.
These assertions are, in themselves, plausible, but the company has failed to substantiate them sufficiently. The evidence provided by the company includes, amongst other things, a floor plan of the unfurnished flat and statements from business associates regarding meetings that took place in the flat. The company supports this list of business meetings with an extract from a diary compiled retrospectively (the original record – the diary and other information – has not been provided).
Furthermore, the private limited company has provided only two photographs: one of a small desk with a laptop on it, and one of a table with two laptops and six chairs. The private limited company has not provided any photographs of the other rooms or of the full interior of the flat. The Tax and Customs Administration has submitted sales information relating to the flat, which shows that the flat is fully furnished as a residence. The company has not provided any evidence to show that the furnishing was carried out with a view to sale.
The Court therefore rules that the private limited company has not sufficiently demonstrated that the flat was not (partly) used as a residence, but exclusively for business purposes. The Court of Appeal concurs with this ruling and further considers that the director and majority shareholder is the only person to hold a key to the flat and can use it at any time.