This is contribution number 38 by KPMG Meijburg & Co regarding changes to Dutch VAT and transfer tax rules for immovable property.

INTRODUCTION

There have been major changes to the Dutch VAT rules and transfer tax rules for immovable property, principally to combat tax avoidance.

The legislation was published on 29 December 1995, but has retrospective effect from 6.00 p.m. on 31 March 1995.

CHANGES DUTCH VAT RULES FOR IMMOVABLE PROPERTY

The principal changes are:

1) A lessor can only opt tax (i.e. to charge VAT) on a lease if the lessee is entitled to recover at least 90 % of the VAT charged.

If the lessor does not opt to tax the lease, it will be exempt and the VAT charged on, for example, maintaining or converting the relevant property cannot be deducted by the lessor.

Where at 31 March 1995 the relevant building (still) is in the revision period, part of the VAT the lessor deducted when purchasing, building or maintaining the relevant property will be clawed back.

At the time, the option to tax is made and subsequently on an annual basis, the lessee must provide the lessor with a written statement certifying that he is using the property for purposes which allow him to recover at least 90% of the VAT charged.

2) Similar requirements have to be met when there is an outright sale of immovable property.

The vendor can only opt to tax the supply if the purchaser can recover at least 90% of the VAT charged.

3 ) A lessor can also apply to the tax administration for permission to tax a lease, if the lessee belongs to certain industrial sectors to be defined further by the Minister of Finance.

In addition, the lessee has to prove he is entitled to recover at least 70% of the VAT charged.

Similar rules will apply to outright sales of immovable property.

The Minister has indicated that the above-mentioned arrangement will only apply to industries where the rule that the lessee can recover at least 90% of the VAT charged would lead to distortion of competition.

Requests for designation of industrial sectors must be submitted to the Ministry of Finance.

At the moment, the following industries have been designated:

- employer's organizations;
- broker's business (including effecting mortgage and insurance);
- travel agency's (including the acting as an intermediary interceding insurance).

In this context it has to be noted that by a Decree of 22 January 1996 new rules are provided regarding the entitlement to deduct VAT in the Netherlands on the letting of immovable property located outside the Netherlands.

As a result, Dutch VAT charged on purchasing, building or maintaining the relevant immovable property can be deducted by the lessor, if he can prove that he could or would have opted for taxation had the immovable property been located in The Netherlands

There will, generally, be a reasonable case only if:

- the immovable property is not used as a private dwelling and
- the parties involved have exercised the option for taxation (if allowed) in the country where the immovable property is located ; or (only in respect of the second condition)
- it may be assumed at the beginning of the lease that the lessee would be entitled to deduct the VAT charged up to at least 90% if the lease had been subject to Dutch VAT.

4) Normally, opting to tax a lease is not possible if the lessee is a diplomatic mission or an international organization.

However, the lessor will be entitled to charge 0% VAT, if the lessee can prove he qualifies for the arrangements for the above-mentioned institutions and can recover at least 70% of the VAT charged.

As a result, the lessor can deduct any related input tax.

5) The creation or transfer of a long lease or usufruct and similar rights are considered to be a supply of goods only if the price paid is at least the same as the "cost price" of the immovable property at the time of the supply.

The cost price is taken to be the cost of constructing the building at the time of the construction by a third party, less an adjustment to reflect the condition of the property.

Otherwise the above-mentioned supply is considered to be a letting and therefore a supply of services for VAT purposes.

6) From 31 March 1995, a business wishing to opt to tax all the premise let on a short-term basis to different persons no longer needs a "permanent option license" from the tax authorities. In the future, explicitly has to be stated that the rent in question is subject to VAT.

The State Secretary of Finance has stated that only the letting of conference, meeting and exhibition premises qualifies for the above-mentioned arrangement.

CHANGES TO DUTCH TRANSFER TAX RULES FOR IMMOVABLE PROPERTY

The principal changes are:

1. The transfer of the economic ownership of immovable property is subject to a transfer tax of 6% which is payable by the person acquiring the property.

Economic ownership has to be defined as:
"each interest in immovable property or rights in rem that, according to an agreement whereby rights and obligations (including the risk of valuation changes and destruction) are transferred, belonging to someone other than the owner or the limited authorized person".

2. No exemption from transfer tax concerning acquisitions subject to VAT calculated on a value below the economic value, if the acquirer cannot (partly) recover the VAT charged.

3. The transferor of economic ownership must report the transfer to the tax authorities within 2 weeks, if there is a notarial deed.

4. The transferor of economic property will be held liable for the transfer tax, if there is no notarial deed.

The notary can be held liable for the transfer tax, if there is a notarial deed.

5. The scope of the provisions concerning levying interest is extended to the transfer tax.

Further information can be obtained from Mr M.M. Vrolijk, KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247.

Keywords: Netherlands / Europe / EC / European Union / KPMG Meijburg & Co / VAT / Transfer Tax

Note: The content of this contribution is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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