The Dutch Supreme Court (Hoge Raad der Nederlanden) on 1 November 2013 made a request of the Court of Justice of the European Union (CJEU) for a preliminary ruling concerning the value added tax (VAT) treatment of the management of real estate companies.
Specifically, the referral to the CJEU concerns investment funds and investment companies that invest in real estate, and whether they are “special investment funds” under a VAT exemption and whether property management is “management” eligible for the VAT exemption.
The taxpayer entered into management agreements with three companies that invest in real estate, with the taxpayer agreeing to administer and manage the companies, attract investors, purchase and sell real estate, and manage the properties.
The taxpayer received an annual management fee (a percentage of the gross annual rent) as well as payments for investments and divestments (0.5% of the value of the realized investments or divestments) and payments for attracting new investors (0.5% of the value of the interest to be acquired by the investor).
The investors in the real estate companies were institutional investors.
In 2009, the District Court Breda found that the taxpayer’s activities constituted a single service that was eligible for the VAT exemption provided for the management of special investment funds.
However, in 2011 the Court of Appeals Den Bosch concluded that the taxpayer’s activities consisted of a number of separate services—including property management—and held that these separate services were “distinctive and essential” elements of the management of real estate funds or real estate companies and were therefore were VAT-exempt.
Supreme Court referral to CJEU
With the case on appeal, the Dutch Supreme Court noted that:
- CJEU case law gives rise to a question as whether investment funds and investment companies that invest in real estate are “special investment funds” as referred to in the VAT exemption.
- On the basis of CJEU case law, it could not be unequivocally concluded that property management is to be regarded as “management” for the purposes of the VAT exemption.
The Supreme Court, therefore, requested that the CJEU issue a preliminary ruling to clarify these issues.