The term “residential property” is not specifically defined for transfer tax purposes, which leads to many disputes between tax inspectors and taxpayers in practice. That was also the situation in this case, which revolved around the question of whether a particular property could be regarded as residential property on the acquisition date. If so, the transaction would be subject to transfer tax at a rate of 2% rather than 6%.

On 8 July 2013, the interested party signed a sale and purchase agreement to acquire property for a purchase price of €2.3 million. The purchase deed stated that on the transfer date the property would have the actual characteristics required for normal use as an office building. However, the interested party intended to let the property it had purchased as residential units. Two weeks before the transfer, the interested party started installing shower facilities and kitchen units. The transfer was effected on 1 August 2013. In the notarial deed, the interested party declared that the property consisted of residential units at that moment and that consequently the transfer was subject to 2% transfer tax.

On 12 September 2013, the tax inspector conducted an on-site inspection which revealed that approximately 70% of the property was still in its old condition and that demolition and refurbishment work had been carried out to the remaining 30% of the property, but that none of the residential units was ready. On the date of the on-site inspection, the inspector found that only one shower facility, three kitchen units and several toilet blocks had been installed.

Parliamentary history notes that “residential property” is understood to mean property which based on its nature is intended for residential use on the date on which its legal title is transferred. If there are any doubts as to whether a property is, by its nature, intended for residential use, one aspect that is important is whether the municipal authorities have designated the property for residential use. The Dutch Supreme Court has addressed this matter in more detail in several judgments from which it follows that in order to determine whether a property is regarded as residential property, the following aspects are the first that must be taken into account: (i) the original type of structure (an objective criterion) of the property; and (ii) whether the structure of the property was subsequently changed and if that is the case, for what purpose and with what objective in mind that was done. In that respect, the nature and function of the property must have been changed in such a way as to eliminate the original type of structure. If these criteria do no clarify the classification of the property, the property’s designation under public law can be the deciding factor. In this respect, the actual use of the property and the actual duration of such use are not deciding factors.

In this case, the court of appeal inferred from the facts that the property had been constructed as an office building and was occupied as such. This means that the property was originally designed and constructed to be used for purposes other than residential property. Next, the court of appeal held that on the acquisition date, i.e. 1 August 2013, the property had not been refurbished to such an extent that the nature of the property had been changed to residential property. The interested party’s assertion that the property could nevertheless be regarded as residential property because the refurbishment work had commenced and the designation of the property had changed is incorrect. The property did not qualify as residential property, meaning that the interested party had to pay 6% transfer tax on the acquisition.

Source: HR ECLI:NL:HR:2018:168