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Written by:
Bas Hollenberg


Input tax credit in connection with vacant premises revisited

It is essentially permissible for entrepreneurs to deduct the value-added tax other entrepreneurs charge on to them. The value-added tax in question qualifies instantly and in its entirety as a tax credit where there is a question of proposed use in connection with taxed services. Review of the input tax credit on capital goods is called for where the actual deployment has changed at any time over the nine-year period following the year during which the goods were first commissioned. According to the Supreme Court of the Netherlands, the termination of the value-added tax-exempted let of a property warrants such review.

A business owner commissioned an office property to be newly built. He successfully deducted the value-added tax the build involved, and as soon as the property had been commissioned went on to let it on a value-added tax-exempted basis, in which context he duly made a value-added tax payment to the State because of the property’s internal transfer. The value-added tax-exempted lease expired after five years and the property remained vacant for the next three years. As the business owner planned to conclude a value-added taxed lease during the latter period, he felt that the application of the review regime should justify his recovery of some of the value-added tax. However, the State Secretary for Finance adopted as his position that there had been a question of value-added tax-exempted use throughout the rental void and submitted the matter for the scrutiny of the Supreme Court.

The Supreme Court maintained that the office building’s value-added tax-exempted let had terminated and the building had not subsequently been used for business purposes, but that this had done nothing to detract from the fact that the building’s designated use was that of commercial accommodation. It is permissible, the Supreme Court argued, when a capital good is first commissioned to assume that the good in question is to be used in aid of transactions that are liable for value-added tax, and it is no less permissible to assume that the proposed use should be in aid of value-added taxed transactions even if the capital good in question has been sitting there idle in the wake of its actual use having come to an end. The matter in hand question had involved the termination of the value-added tax-exempted let as a circumstance which had prompted the input tax credit review.

More to read: Proportionate input tax credit

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