Netherlands: Qualification of land as developed or undeveloped for VAT purposes (Supreme Court decision)

The Dutch Supreme Court on 9 February 2024 held that a plot of land that still had a 96 meter long retaining wall on it at the time of supply qualified as undeveloped land for value added tax (VAT) purposes because the wall was negligible in relation to the undeveloped part of the land.

The qualification of land as developed or undeveloped is relevant for VAT purposes because the supply of developed land is in principle VAT‑exempt, while the supply of undeveloped land may be subject to VAT as a building site (with the acquisition then often exempt from real estate transfer tax). 

Summary

The lower courts had held that the land was developed for VAT purposes because the land could not exist without the retaining wall and was thus not negligible.

Contrary to the lower courts, the Supreme Court held based on the following step‑by‑step analysis that the wall was negligible in relation to the undeveloped part and that the entire plot must be regarded as undeveloped land:

• Is the land linked to the building? If the supply of an immovable property concerns a single plot of land comprising not only a building (such as the wall) but also undeveloped land, what first has to be assessed is whether that plot, as a whole, must be regarded as a building and its land linked to the building. There is linked land if the undeveloped part is, according to societal views, regarded as belonging or subservient to the buildings on that plot of land.
• Buildings negligible in relation to undeveloped land? If the undeveloped part is not regarded as linked land, it must subsequently be assessed whether the converse is the case. That situation arises if the building must be regarded as negligible in relation to the undeveloped part of the plot. In that case, the plot is regarded as undeveloped land.
• One or more independent supplies for VAT purposes? It is only if a developed part of a single plot cannot be regarded as negligible in relation to the undeveloped part and the undeveloped part cannot be regarded as land linked to the developed part that the question may arise as to whether there are parts that must be taken into account separately for VAT purposes and must be treated differently. Of importance is that the plot must not be artificially divided. There is an artificial division if the various parts, from an economic perspective, are indivisible or constitute a single whole.

Once it has been established that there is undeveloped land, it must be determined whether the undeveloped land is intended to be developed. If that is the case, then the supply of the undeveloped land is subject to VAT and the acquisition is exempt from real estate transfer tax. 

Read a February 2024 report prepared by the KPMG member firm in the Netherlands