The scope of the definition of "building land" is a hot topic in the Netherlands. The Dutch Supreme Court has referred several preliminary questions on this issue to the Court of Justice of the European Union (CJEU). In addressing these questions, the CJEU provided us with the judgments in the Don Bosco (C-461/08) and the JJ Komen en zonen Beheer BV (C-326/11) cases and we are currently awaiting judgment in the Woningstichting Maasdriel (C-543/11) case.
In the Netherlands, the supply of building land is taxable with 21 percent VAT. Such transaction will not trigger Real Estate Transfer Tax (RETT). RETT is normally due upon acquisition of Dutch property. A rate of 6 percent applies (for houses: 2 percent), calculated upon sales price or higher market value. RETT is not deductible or refundable, so will constitute a true burden. It is for that reason that parties often strive to transfer property as building land; such transfer is exempt from RETT.
The Dutch VAT act defines "building land" as vacant land for which preparations have been made in light of future construction or with regard to which a construction permit has been granted. If such preparations are not carried out or such permit has not been granted, the land will not qualify as building land and the supply of the land is exempt from VAT, triggering a RETT liability for the buyer.
However, it seems that the Dutch "building land" is not in sync with the EU VAT Directive. The CJEU ruled in Gemeente Emmen (C-468/93) and Don Bosco (C-461/08) that member states may define "building land," provided that only the supply of land which is not intended to be used for building activities is exempt from VAT.
Under Dutch law, the supply of vacant land which is intended to be used as surface for a future building, but for which no preparations have been made and with regard to which no construction permit has been granted, is exempt from VAT, contradicting the scope of building land as defined by the CJEU.
The Dutch Supreme Court has been asked to render a decision in a case in which the vacant land supplied did not qualify as building land for Dutch VAT purposes, although the land was destined for future building use.
In its advice to the Supreme Court, the Dutch Attorney General concludes that the Dutch definition of building land is indeed not in sync with the scope of "building land" under the EU VAT Directive and is too narrow. In the case at hand, the transaction should have been subject to VAT and exempt from RETT, according to the AG.
We expect that the Dutch Supreme Court will render its decision only after the CJEU ruling in the Woningstichting Maasdriel (C-543/11) case. Future construction plans in the Netherlands might be simplified if the decision of the Supreme Court is in line with the opinion of the AG. If so, it will become easier to avoid paying RETT when starting up building projects in the Netherlands.