Businesses that purchase goods and services of a consumptive nature, such as business gifts and staff benefits, may not be able to recover the input VAT incurred or may need to correct input VAT recovery for private use in the last Dutch VAT return of the financial year. Year-end revisions may also need to be processed in this return if the use of goods and services purchased has changed for VAT purposes during the financial year. For many businesses, the last Dutch VAT return of the financial year is the 2022Q4 or the December 2022 Dutch VAT return, both due by the end of January 2023.
Andy van Esdonk, Head of VAT Netherlands at Bird & Bird, says: “The Dutch VAT private use corrections and year-end revisions can be a time-consuming exercise for in-house tax, legal and finance teams at the beginning of the year. It remains an important topic nonetheless, as non-compliance may lead to high assessments and penalties, particularly if small omissions are extrapolated. To smoothen the annual recurring process, we recommend internal policies for managing input VAT recovery to include specific controls for private use corrections and year-end revisions.”
Philip Hartman, Partner Employment and Benefits at Bird & Bird, spotlights: “Where private use corrections are concerned, we see increased employer spending on consumptive purchases post COVID-19. This includes costs to facilitate working from anywhere and costs to incentivise staff in physically returning to the office. This topic has never been more relevant.”
To claim input VAT recovery in the first place, businesses should meet various conditions. The main conditions are that they should (1) generate VAT taxable turnover, (2) purchase goods and services in their business capacity and (3) have a correct VAT invoice.
Barbara den Exter, Associate Tax at Bird & Bird, observes: “Businesses may incur various limitations on their input VAT recovery position. These may be caused by VAT out of scope activities, such as holding shares, or by generating VAT exempt turnover, such as granting interest bearing loans or leasing immovable property without VAT. Furthermore, input VAT recovery may be blocked where supplier invoices do not meet the legislative VAT invoice requirements. In-house teams should therefore make sure that supplier invoices are correct before input VAT recovery is claimed.”
“Also, input VAT recovery claimed may already be subject to revision during the financial year. This applies if the first actual use of goods and services purchased deviates from their intended use when input VAT recovery was claimed. This is the first revision moment,” Andy van Esdonk emphasizes.
Main private use categories
The main private use categories for Dutch VAT purposes are (1) food and drink on site, (2) company cars, (3) the BUA decree and (4) the company canteen scheme.
For (1) food and drink on site e.g. in a hotel, café or restaurant, input VAT is not recoverable as a default. For (2), (3) and (4) input VAT incurred should be recoverable during the financial year in accordance with the business’ input VAT recovery position. However, at the end of the financial year:
- for (2) company cars, a VAT correction should be made if company cars are privately used. The correction is either based on the actual private use of the car or on a fixed percentage (in principle 2.7% of the car value including VAT and vehicle/motorcycle taxes).
- for (3) the BUA decree (a specific Dutch VAT decree excluding input VAT recovery), a VAT correction should be made if business gifts or staff benefits exceed an annual threshold of EUR 227 per recipient. I.e. not including company cars.
- for (4) the company canteen scheme, it should be determined whether food and drink are sold below cost price. If so, a specific canteen correction should in principle be made. Following such a correction, the canteen costs can be ignored for determining whether the abovementioned EUR 227 BUA threshold per recipient is exceeded.
“The BUA has a broad scope and covers many types of employer spending, such as accommodation, payment in kind, sports, leisure, office parties and Christmas gifts. For certain types of employer spending it is not clear cut whether the BUA applies. This for example covers fees for legal assistance of employees. It must be determined whether such legal fees are primarily incurred for the business’ interest, with the personal benefit of the employee being of secondary importance. The same goes for public transport, skyboxes and mobile phones to name a few,” Philip Hartman comments.
“Various exceptions and methodologies apply for private use corrections. For food and drink on site, input VAT recovery may for example still be available if food and drink is not purchased as an end user. For company cars, different rules for instance apply to define private use for VAT compared to wage tax. Furthermore, the company canteen scheme may require businesses to charge and collect VAT on canteen turnover during the year, as well as to properly administer purchases and daily users,” Barbara den Exter reflects.
“Where the BUA decree has no effect, so-called deemed supplies may be triggered instead, resulting in VAT payable positions. Deemed supplies may for example cover gifts to business customers whom – had these gifts been subject to VAT – would be able to fully recover this VAT,” Andy van Esdonk adds.
For all goods and services purchased during a financial year, the final input VAT recovery positions must be determined based on the information relating to the whole financial year at year-end. Accordingly, year-end revisions may occur if the use of goods and services purchased has changed for VAT purposes after entry into first actual use. For example a change from business use to private use, from VAT taxed use to VAT exempt use, or if the so-called pro rata ratio of turnover giving rise to input VAT recovery versus all turnover has changed. This is the second revision moment. Any year-end revisions that are due must be processed in the last Dutch VAT return of the financial year. Exceptions may apply, including a nine month extension for banks.
For capital goods specifically, other revision moments may apply as well. For example including a revision monitoring period of four financial years (movable goods) and nine financial years (immovable property and immovable property rights) after the year of first actual use. Any revisions during these monitoring periods must be processed in the last Dutch VAT return of the relevant financial year.
“Changes in the pro rata ratio are very important for businesses engaged in VAT exempt operations, including financial and insurance services, medical care and for businesses owning or leasing immovable property. On top of that, monitoring revisions is highly relevant for businesses that are capital goods heavy. For example, where businesses have opted for a VAT taxed sale or lease of immovable property, it must be determined whether the requirements for a VAT taxed sale or lease are met or are continued to be met. Amongst others tax authorities may need to be informed and there may be serious adverse VAT impact if the requirements are not met,” Andy van Esdonk considers.
The 2022Q4 and the December 2022 Dutch VAT return are both due by the end of January 2023. Other timing may apply, for example for deemed supplies of goods or if the financial year of your business does not equal the calendar year. For certain private use corrections and (year-end) revisions, it may be useful reviewing whether an objection can be filed.
Willem Bongaerts, Partner International Tax at Bird & Bird, concludes: “The Dutch VAT position of a business at the end of the financial year may need to be specified in the Dutch CIT return. It is therefore of essence to properly reconcile these. Next to VAT and wage tax in the Netherlands and other countries, we recommend businesses addressing CIT impact of employer spending as well. Especially post COVID-19, we see higher permanent establishment risk abroad since employers increasingly allow working from anywhere. This trend is also on the agenda of tax authorities across the globe in search for tax revenues.”