Netherlands: Concept of “essentially a new building” for VAT purposes (Supreme Court decision)

A property qualifies as “essentially a new building” when refurbishment results in a previously non-existent property.

VAT purposes (Supreme Court decision)

The Dutch Supreme Court (Hoge Raad) on 4 November 2022 issued a preliminary decision regarding the circumstances under which a property qualifies as “essentially a new building” for value added tax (VAT) purposes.

The Supreme Court held in line with earlier judgments that a property qualifies as “essentially a new building” for VAT purposes when refurbishment results in a previously non-existent property, which is mainly achieved by an extensive alteration in the building’s structural construction. Other factors can also play a role, but they are not decisive.


The taxpayer bought a hotel in 2018 for €15.8 million. The seller purchased the building in 2015 for €4.8 million and converted it from an office building into a hotel in 2017/2018. The refurbishing costs were about €7 million. The works involved stripping the interior, altering the sanitary facilities, installing a new sprinkler system and outfitting the building with a new heating system. Little to no changes were made to the building’s existing structure. The roof, floors, staircases, ceilings and elevators were not removed, nor were they replaced. The building was modified to bring it up to date with today’s building requirements and to meet the taxpayer’s wishes, but the refurbishment did not result in an increase in existing surface areas, and the appearance of the building was not altered.

The taxpayer argued that the refurbishment resulted in “essentially a new building” for VAT purposes, such that its transfer would be subject to VAT. In such case, the taxpayer could invoke the real estate transfer tax concurrence exemption, and no real estate transfer tax would be due.

The tax authority refuted the taxpayer’s position, and the taxpayer appealed to the District Court. The District Court concluded that there are no clear-cut guidelines for when “essentially a new building” has been created and asked the Supreme Court to issue a preliminary ruling.

The Supreme Court decided that work on an existing building will only lead to the creation of a previously non-existent building if the work is so extensive that “essentially a new building” has been created. In other words, the end result of the refurbishment should be considered on a par with a new building, which turns on the structural work the building has undergone, such as replacements of all or some of the existing structural construction.

In addition to alterations to the existing structural construction, the Supreme Court listed the following factors that may point to the creation of “essentially a new building”:

  • Changes to the property’s structural identity/outward appearance
  • Changes to the use/functionality of the property
  • Amount of investment in the building
  • Added value achieved by the refurbishment

However, these factors individually or jointly are not decisive or required.

KPMG observation

Despite the fact that the Supreme Court has now provided guidance with respect to the concept of “essentially a new building,” it remains unclear how to weigh the factors. Nonetheless, the preliminary decision establishes that there must have been alterations to the structural construction as a minimum. Each case still will have to be assessed individually to determine whether or not “essentially a new building” has been created.

Read a November 2022 report prepared by the KPMG member firm in the Netherlands


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