On 28 April 2016 the European Court of Justice (ECJ) gave its preliminary ruling in the case Staatssecretaris van Financiën v. Het Oudeland Beheer BV .

The case had been referred to the ECJ by the Hoge Raad der Nederlanden (Netherlands Supreme Court) for a preliminary ruling on the following question:

Should Article 11A (1) (b) of the Sixth VAT Directive be interpreted to mean that the cost price of land or other materials in respect of which the taxable person has paid VAT on acquisition, in this case by grant of a right in rem to use immovable property, is not part of the taxable amount on a supply within the meaning of Article 5 (7) (a) of the Sixth Directive? Is the position different if the taxable person has deducted the VAT on the acquisition on the basis of national law, whether or not in conflict with the Sixth Directive.

In a case such as this where land with a building under construction is acquired with the grant of a right in rem referred to in Article 5 (3) (b) of the Sixth Directive must Article 11 (A) (1) (b) be interpreted to mean that the value of the ground rent, that is the value of the annual amounts to be paid for the duration of the right in rem, is part of the taxable amount within the meaning of Article 5 (7) (a)?

Provisions of the EU Sixth VAT Directive

Article 11 (A) (1) (a) of the Sixth VAT Directive provides that within the territory of the country the taxable amount shall be everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, customer or a third party for the supplies, including subsidies directly linked to the price of the supplies.

Article 5 (7) (a) of the Directive provides that member states may treat as supplies for consideration the application by a taxable person for the purposes of his business of goods produced, constructed, extracted, processed, purchased or imported in the course of such business, where the value added tax on such goods, had they been acquired from another taxable person, would not be wholly deductible.

Article 5 (3) (b) provides that member states may consider as tangible property the rights in rem giving the holder thereof a right of user over immovable property.

ECJ Ruling

On 28 April 2016 the ECJ ruled that Article 11A (1) (b) of the Sixth VAT Directive 77/388/EC should be interpreted to mean that the value of a right in rem granting its holder a right of use over immovable property and the cost of completing the office building built on the land in question may be included in the taxable amount of a supply within the meaning of Article 5 (7) (a) of the Directive as amended, where the taxable person has already paid VAT on that value and that cost but has also deducted the VAT immediately and in full.

In this situation, where land and a building under construction on that land have been acquired with the grant of a right in rem granting its holder a right of use over such immovable property, Article 11A (1) (b) of the Directive must be interpreted to mean that the value of that right in rem to be taken into account in calculating the taxable amount of a supply within the meaning of Article 5 (7) (a) of the Directive corresponds to the value of the amount to be paid in consideration each year for the remainder of the long lease granting a right in rem, as corrected or capitalized using the same method used to determine the value of the grant of the long leasehold.