In this first issue, we discuss three judgments and a new decree from the Dutch Ministry of Finance, all concerning the transfer or acquisition of real estate.
Sale and leaseback
Dutch real estate offer (those. transfer of legal or economic property) is in principle not subject to VAT. There are three exceptions to this rule: (i) the provision of “building land”, (ii) the transfer of newly constructed buildings no later than two years after the first use of the property, (iii) other deliveries if the seller and the buyer have chosen to transfer subject to VAT. VAT is not levied on the transfer of all or an independent portion of a business to a company (also known as “going concern transfer”). These transactions are not subject to VAT.
On January 29, 2021, the Dutch Supreme Court ruled to sell and leaseback. The case concerned a housing corporation that initiated the development of a residential complex in 2010. In 2011, the housing corporation entered into a sale and leaseback agreement with the investor. The parties agreed that the residential complex will be leased for 25 years and that the investor will be prohibited from selling the residential complex to a third party without the permission of the housing corporation (which will be denied for the first 15 years). …
After acquiring ownership of the residential complex, the investor rented the residential complex back to the housing corporation and provided the housing corporation with the right (and further) to lease residential units on its own behalf and at its own expense. Following the legal transfer, the housing corporation will be responsible for managing the property on behalf of the buyer. In the transfer of the residential complex, the housing corporation and the investor took the position that the sale and transfer were not subject to VAT, since the transfer qualifies as a “transfer of a going concern”. The Dutch tax authorities have challenged the classification of the transaction.
In the opinion of the Dutch Supreme Court, the notion of “transfer of a going concern” should be applied strictly. According to the court, the housing corporation did not transfer its economic activities (those. lease of real estate), but only the ownership of real estate. The transfer of ownership of an asset alone is not sufficient to qualify as a transfer of a business. Since the housing corporation did not transfer its rental activities to the buyer, the court ruled that the transfer of the residential complex could not be considered a transfer of a going concern. In addition, since the residential complex was “rebuilt,” the court ruled that the transfer of property by the housing corporation to the investor was subject to VAT.
Acquisition of legal, but not economic, ownership of shares
Acquisition of legal and / or economic ownership of real estate located in the Netherlands is subject to real estate transfer tax at the rate of 8%. In addition, the acquisition or expansion of a “stake” of at least one third in a real estate company is subject to real estate transfer tax. A real estate company is an organization (i) which mainly trades in real estate or rents it out, and (ii) whose total assets consist of more than 50% of real estate properties and at least 30% of total assets are real estate real estate in the Netherlands …
On April 9, 2021, the Dutch Supreme Court ruled that the acquisition of shares in a real estate company by a fund manager is subject to real estate transfer tax, even if the fund manager does not acquire any economic interest in those shares. In this case, the German fund manager acquired shares in several real estate companies on his own behalf, but at the expense of (investors) a German real estate fund. The fund had more than four members and none of the investors was eligible for an economic interest of one third or more.
The German fund manager argued that no real estate transfer tax was levied on the acquisition, as he simply acquired legal title to shares in real estate companies as custodian of the fund and not as “interest.” The Dutch Supreme Court disagreed. The shares of a real estate company are considered real estate by law. Since the acquisition of legal title to immovable property is subject to immovable property transfer tax, the court ruled that the acquisition of legal title to shares in a real estate company is also a taxable event for immovable property transfer tax purposes. This is true even if the buyer does not receive economic interest in the real estate company.
Independent part of real estate
To determine the effects of real estate transactions on VAT, it is important to know whether property can be considered as independent units or as a single complex. According to the regulation of the Ministry of Finance of the Netherlands dated September 19, 2013, a part of a property can be considered as a separate unit if this unit can be used or operated independently.
On March 12, 2021, the district court ruled whether the acquisition of an apartment building should be considered as the acquisition of one property (those. one set) for VAT purposes. In this case, the apartments were rented separately. However, the land lease was not divided into apartment rights, the superstructures were not legally divided, and the apartments shared the same premises such as storage and sanitary areas. The District Court ruled that different parts / units of immovable property cannot be used independently and therefore must be treated as a single property for VAT purposes.
Real estate transfer tax in the new regulation
On May 6, 2021, the Dutch Ministry of Finance issued a new decree on real estate transfer tax. This regulation replaces the decree of October 15, 2015 and includes a number of changes. The decree also includes new rules for reverse legal mergers. A reverse legal merger is a merger in which a parent company disappears and merges with its subsidiary. The shareholder (s) of the disappearing parent company acquires the shares of the surviving subsidiary company.
If this subsidiary is a real estate company (as defined by law), the acquisition of shares from the remaining company is subject to real estate transfer tax, even if the acquiring shareholders already indirectly (through the parent company) owned the shares. in this real estate company. The new decree includes provisions that would result in no real estate transfer tax on the acquisition of shares in a surviving business, subject to certain conditions. among other thingsthat both the disappearing legal entity and the surviving legal entity qualify as a real estate company immediately prior to the merger, the disappearing legal entity was the sole shareholder of the surviving legal entity and the relative (indirect) share (s) of the shareholder (s) in real estate assets do not change as a result mergers.