Dutch Supreme Court refers VAT case on transfer of going concern to CJEU

This case is relevant in light of the ongoing uncertainty in the Dutch market as to whether the sale of leased immovable property by a property developer constitutes a transfer of going concern pursuant to Article 37d of the Dutch VAT Act. Although this case involved the levy of VAT it may also have consequences for the levy of real property transfer tax (RPTT), see our observations below. 

In this Tax Alert, we will discuss the Dutch Supreme Court ruling and key considerations that may be relevant to (inter)national companies investing and developing real estate in the Netherlands. 

1. Facts and VAT positions of the taxpayer and the tax authorities

On 24 March 2015, a company forming part of a real estate development group, acquired a former office building for an amount of EUR 2.5 million, and applied for a permit to transform it into a residential building with 77 apartments. In June 2015, the taxpayer, a limited liability company was established (within the same group) after which the taxpayer entered into a construction contract for the transformation works, which commenced in June 2016. In July 2016, the former office building was sold and transferred to the taxpayer and in April 2017 the construction work was completed. Before the establishment of the taxpayer, the preparation for letting of the residential building had already started. 

From May to July 2017, the taxpayer entered into tenancy agreements for the apartments and parking spaces. The tenancy agreements were concluded for a minimum period of one year, during which none of the parties could terminate the agreement, and continued for an indefinite period thereafter with a two-month notice period. The tenancy agreements also provided for various ancillary supplies and services, including a caretaker, cleaning of common areas, maintenance of green spaces and minor repairs.

On 15 November 2017, the residential building was sold and transferred to an investment company for a total purchase price of EUR 12,678,500, "including any VAT and/or transfer tax due". The investment company took the position that the transfer was VAT exempt. Upon transfer, the rights and obligations under the tenancy agreements passed to the investment company by operation of law pursuant to Article 7:226 of the Dutch Civil Code. The investment company continued the letting of the apartments and ultimately sold the residential building in May 2018.

2. District Court and Court of Appeal

The District Court had to determine whether the taxpayer was liable to VAT in respect of the supply of the residential building. The question was whether newly built real estate subject to VAT was established, and if so, whether the transfer of the residential building could be considered a transfer of going concern exempt from VAT. In this regard, the taxpayer relied on the exemption in article 11(1)(a) of the Dutch VAT Act, arguing that the transformation of the office building into a residential building did not result in newly built real estate. The District Court, however, followed the reasoning of the tax inspector by ruling that the transformation has led to newly built real estate as the appearance of the building had significantly been altered. Furthermore, the District Court ruled that the transfer of the residential building could not be considered a transfer of going concern as it did not accept that the residential building had genuinely formed part of a rental business of the taxpayer prior to the sale. In the District court's view, the taxpayer never intended to hold the residential building as a long-term investment to generate ongoing rental income, unlike the investment company which acquired the residential building for this purpose. Therefore, the District Court was of the opinion that the transfer should be subject to VAT.

The Court of Appeal ruled that article 37d of the Dutch VAT Act applies to the transfer of an asset that was exploited before the transfer to obtain lasting income from it and will also be exploited after that transfer to obtain lasting income from it. In determining whether the exploitation of immovable property in the form of letting is aimed at obtaining lasting income, all facts and circumstances of a case must be assessed. In doing so, the objectives or results of the activity as such are not relevant, according to the Court of Appeal. The Court of Appeal subsequently ruled that the taxpayer was a VAT-able person, meaning that the taxpayer exploited the residential building prior to its supply in order to obtain lasting income from it. The Court of Appeal based this conclusion on the following facts and circumstances:

• The preparation for the letting had already commenced in 2015.
• The tenancy agreements and agreements for the ancillary activities to be performed in connection with the letting were (partly) concluded before a purchaser for the residential building had presented itself.
• If the taxpayer could not find a purchaser for the residential building, the taxpayer would have been committed to let the residential building for a longer period with various ancillary obligations for which it had concluded various service contracts with third parties.
• At the time of sale of the residential building, the taxpayer's business consisted of letting 77 residential apartments with all associated activities

According to the Court of Appeal, the taxpayer's intention to sell the residential building at some point – whether or not this intention existed for a long time – should not affect the above conclusion as CJEU case law does not make clear that the taxpayer's intention is relevant for application of the exemption for a transfer of going concern.

3. The Dutch Supreme Court ruling

On 21 November 2025, the Dutch Supreme Court referred two preliminary questions to the CJEU relating to the applicability of the exemption for transfers of going concern (article 19 of the VAT Directive) for VAT purposes:

1. The first question boils down to whether the exemption for a transfer of going concern may be applied to the supply of immovable property (in this case a residential building) which is either exempt from VAT under article 136(a) of the VAT Directive or article 135(1)(j) of the VAT Directive.

2. The second question deals with the issue that was the focus of this case whether it suffices for application of the exemption for a transfer of going concern that a property is let by the seller and supplied in let state, or whether the intention with which the seller developed the property and commenced letting after completion are also relevant.

The Supreme Court has postponed the proceedings pending the CJEU's ruling.

       (A) First question

With regard to the first question, the Supreme Court noted that the purpose of Article 19 of the VAT Directive, as interpreted by the CJEU, is to facilitate transfers of undertakings by simplifying them and avoiding placing the purchaser's financial position under fiscal pressure, since the purchaser would at a later point in time be able to deduct the input VAT as a result of the taxable activities it is performing. Or said in another way, by not exempting such transactions, the purchaser should pay VAT on the transfer, while it is already clear that the purchaser may deduct such VAT in its VAT returns. This raised the question whether Article 19 of the VAT Directive extends to the supply of goods exploited to obtain lasting income in the context of an exempt economic activity which method of exploitation is continued by the purchaser, if such purchaser cannot recover VAT charged to it. Although, the application of Article 19 does in such case in principle not appear consistent with the purpose of the exemption for a transfer of going concern, the text of Article 19 of the VAT Directive does not seem to provide basis for concluding that the exemption for a transfer of going concern does not apply where the goods concerned are used before and after supply for VAT-exempt activities.

The Supreme Court considered that Article 136(a) of the VAT Directive – although not implemented in the Dutch VAT Act for real estate – provides that Member States shall exempt supplies of goods used exclusively for an activity exempt under Article 135, where no right of deduction was enjoyed in respect of those goods. If goods used exclusively for exempt purposes are transferred exempt under Article 136(a) of the VAT Directive, there would in view of the Dutch Supreme Court in principle be no need to assess whether such supplies must remain outside the scope of VAT by application of Article 19 of the VAT Directive. However, when Article 136(a) of the VAT Directive applies, the purchaser does not take over the VAT position of the person supplying the goods contrary to Article 19 of the VAT directive. This difference is particularly important for the application of the 10-year VAT revision period. 

The Supreme Court concluded that neither the VAT Directive nor CJEU case law makes clear whether the scope of the exemption for a transfer of going concern extends to supplies of immovable property used exclusively for VAT-exempt independent activities, which has resulted in the first preliminary question being asked.

      (B) Second Question

With respect to the second question, the Supreme Court addressed whether, assuming Article 19 of the VAT Directive can apply to supplies of property used exclusively for VAT-exempt activities, the nature of the transferor's business and its intentions are relevant. This question came up as the Dutch State Secretary argued that the taxpayer carried out a different type of economic activity (property development) than the activities carried out by the purchaser (real estate investment), resulting in the exemption for a transfer of going concern not being applicable. 

The Supreme Court noted that it cannot be derived from Article 19 of the VAT Directive or CJEU case law whether it suffices that the owner has concluded tenancy agreements of such duration that the rental income must be considered lasting, and the purchaser can carry on an independent economic activity with what it has acquired, without taking into account the nature of the owner's business, the owner's intentions regarding the property, and how long the owner actually exploited the property.

One view is that Article 19 requires the developer to have intended to exploit the property on a lasting basis. Under this interpretation, incidental letting merely to facilitate a sale would not constitute an independent economic activity and the supply could not qualify as a transfer of a going concern under Article 19 of the VAT Directive. Alternatively, Article 19 could be interpreted as focusing solely on what is transferred, not the transferor's intentions. Due to the lack of clarity in this regard, the Dutch Supreme Court asked the second preliminary question. 

4. Observations

Although this case involved the levy of VAT in connection with the sale and purchase of real estate in The Netherlands it may also have implications for the levy of RPTT upon acquisition of such property. Currently, a 10,4% RPTT rate applies for the acquisition of Dutch real estate by an investor (as of 1 January 2026 the RPTT rate for residential real estate will go down to 8%). An important RPTT exemption that is often applied in the case of newly built real estate is the “concurrence exemption”, which – in short - applies if VAT is payable upon the transfer of such real estate. Based on published guidance, the concurrence exemption also applies in case effectively no VAT is levied as a result of application of the transfer of going concern exemption.

The answers to the preliminary questions by the CJEU and the ruling of the Dutch Supreme Court in the pending case may provide important guidance on the boundaries of the VAT exemption for transfers of going concern. However, as said the ruling may also have an impact on the RPTT aspects for (inter)national companies investing and developing real estate in the Netherlands as they might have to reconsider their structuring and tax strategies:

• If the underlying supply would be considered exempt pursuant to article 136(a) of the VAT Directive, it remains to be seen whether the legislator will amend the law (and implement article 136(a) of the VAT Directive after all), and whether the concurrence exemption for RPTT purposes may still be applicable in case of transfer of newly built real estate.

• If the underlying supply would be considered exempt pursuant to article 135(1)(j) of the VAT Directive and the CJEU rules that the exemption for a transfer of going concern cannot be applied on such exempted activity, we would not expect consequences for application of the concurrence exemption for RPTT purposes in case of transfer of newly built real estate. 

• If the transferor's intention would become relevant for the question whether the exemption for transfer of going concern may be applied, this could probably result into transfers of newly built real estate being subject to VAT as letting by a project developer for a short period of time in view of a sale would no longer constitute an independent economic activity for VAT purposes. 

Please do not hesitate to contact us if you have any questions or would like to discuss the potential implications of the Dutch Supreme Court ruling.