• VAT deduction for publicity, administration and real estate agency costs for split sales

VAT deduction for publicity, administration and real estate agency costs for split sales

29 December 2021

In a recent judgment (C-405/19 ‘Vos Aannemingen bvba’ of 1 October 2020) and the Court of Cassation (case no: F.18.0046.N of 21 May 2021), the Court of Justice of the European Union ruled on the deduction of VAT on publicity, administration and real estate agency costs in the case of a split sale where the building is sold by a property developer and the land by another party.

Issue

Vos Aannemingen is a property developer which has erected new apartments on land owned by a third party. Vos Aannemingen sells these apartments with the application of VAT. The land share is sold separately by the third party under the registration duties.

In connection with the sale of the apartments, Vos Aannemingen received several invoices for publicity, administration and real estate agency costs, and the company deducted the input VAT on these invoices in full.

Following an inspection, the Belgian tax authorities rejected the VAT deduction applied to the part relating to the sale of the land shares. For this purpose, an appropriation key was provided based on the turnover figures.

Vos Aannemingen did not agree with this decision and finally the Belgian Supreme Court referred the case to the European Court of Justice.

Taking into account the ruling of the European Court of Justice, the Court of Cassation rendered its final judgment in the Vos Aannemingen case on 21 May 2021. 

 

Judgment of the European Court of Justice

First of all, the European Court of Justice ruled that if there is a direct and immediate link between the services provided to Vos Aannemingen and its economic activity, the fact that these services also benefit a third party does not prevent Vos Aannemingen from deducting VAT in full on these services. The condition is, however, that the advantage derived by the third party is of minor importance in relation to the requirements of Vos Aannemingen. 

The Court of Justice considered that since the advertising, administration and brokerage costs were paid in the interest of Vos Aannemingen, the advantage obtained by the third party must be regarded as secondary.

If the costs paid are not part of the general costs of Vos Aannemingen, but are directly and immediately related to a certain VAT taxable transaction, the fact that the costs incurred are also for the benefit of a third party does not prevent Vos Aannemingen from fully deducting the VAT on these costs.

If Vos Aannemingen were to pass on part of the costs incurred to the third party, this would indicate that this part of the costs is not related to the acts carried out by Vos Aannemingen, but rather to the acts carried out by the third party.

 

Judgment of the Court of Cassation

Based on the specific elements of the case, the Court of Cassation ruled against Vos Aannemingen and therefore rejected part of the VAT input regarding these costs. According to the Court of Cassation, there is no direct and immediate link between the costs incurred and the taxed transactions carried out by Vos Aannemingen. According to the Court, it was possible to pass on part of these costs to the landowners, who also benefited from them since they are costs that should normally be borne by the landowners. 

 

Conclusion

In its ruling, the Court of Justice did not express an opinion on the existence of a direct and immediate link or on whether the advertising, administration and brokerage costs incurred qualified as general costs under Vos Aannemingen or as costs incurred in the performance of a specific activity. This was left to the interpretation of the national court which, in this particular case, found in favour of the VAT authorities and therefore rejected part of the deduction of VAT on these costs.

As a result of the above rulings, the Belgian tax authorities will probably reject the full VAT deduction on these costs in the case of a split sale.

However, a case-by-case assessment is recommended, as the actual circumstances may be different, as well as the determination of a possible allocation key. 

 

Contact

For questions on this subject, please contact your usual BDO contact or send an e-mail to [email protected] to the attention of one of the members of the VAT team: