In 2005, a Dutch entrepreneur filed an appeal against its own periodical VAT return. In this VAT return, the entrepreneur made a correction regarding the private use by its employees of cell phones provided by the entrepreneur to them. Furthermore, in this VAT return, the entrepreneur reported the VAT due in relation to remunerations received for canteen supplies to its employees. Since these remunerations did not cover the total costs involved with canteen supplies, the entrepreneur reclaimed only part of the input VAT due in relation to canteen purchases.
This decision of the Dutch Supreme Court (21/12/2012, no. 10/04656) should be seen in light of the lengthy procedure against a specific VAT regulation of the Dutch Ministry of Finance, Besluit Uitsluiting Aftrek Omzetbelasting ("BUA"). The entrepreneur filed an appeal against its own VAT return based on the view that the input VAT correction rules of the BUA are not sufficiently specified and therefore not compliant with EU VAT legislation.
Based on (temporary) EU regulation, EU member states are allowed to keep limitations of the right to deduct input VAT in their local VAT legislation which they already had before the introduction of the EU 6th Directive on 1 January 1979. However, one of the conditions was that such limitations were sufficiently specified.
In 2008, the Dutch Supreme Court decided that two categories of the BUA, i.e., salary in kind (loon in natura) and goods/services used for one’s private ends (andere persoonlijke doeleinden van het personeel) are not sufficiently specified since such categories can be applied on all kind of goods and/or services and not only on certain specific goods or services, i.e., goods or services that will fall in any of these categories due to its nature. Consequently, the Dutch Supreme Court decided that for these categories, the BUA is not binding for Dutch entrepreneurs.
However, following this decision of the Dutch Supreme Court, the European Court of Justice ("ECJ") decided a/o in Parat Automotive Cabrio (C-74/08) that in order to determine whether a category of goods or services is sufficiently specified, not only the nature of these goods service should be decisive but also the purpose of the expenses made by entrepreneurs.
Based on these decisions of the ECJ, the Dutch Supreme Court revised its 2008 decision. The two categories of the BUA as mentioned above are sufficiently specified if the purpose of the expenses made by the entrepreneur can be taken into account as well. Consequently, the Dutch Supreme Court rejected the appeal filed by the entrepreneur against its own VAT return in which the corrections of input VAT were made.
Since this recent decision is contrary to its previous decision in 2008, the Dutch Supreme Court decided as well that following legal certainty, the Dutch tax authorities cannot retroactively collect input VAT that has been reclaimed by Dutch entrepreneurs following the 2008 decision. The BUA regulation is actively in place as of the date of this decision—21 December 2012. However, in this recent decision, the Dutch Supreme Court does not force the Dutch tax authorities to ignore the BUA in situations whereby entrepreneurs made yearly BUA corrections and filed appeals against their own VAT returns in which these corrections have been made. Consequently, the strange situation now exists wherein entrepreneurs who "dutifully" corrected their input VAT in the periodical VAT returns and filed appeals against these VAT returns will likely get a rejection of its appeals from the Dutch tax authorities, whereas the Dutch tax authorities cannot retroactively collect input VAT with entrepreneurs who did not make any input VAT corrections following the 2008 decision of the Dutch Supreme Court.