Value added tax — Building contractor — Purchase of land — House built for personal use — Dutch tax authorities assessing contractor on basis of land and house as single delivery of goods — Whether VAT payable on value of land as well as house — Interpretation of EC Sixth Council Directive — European Court ruling that land and house to be distinguished for VAT purposes
A Dutch building contractor purchased land, part of which he sold to a third party. He then built two homes: one for the third party on the land which had been sold and a second on the retained land for himself. He deducted as input tax for VAT purposes the turnover tax which he had been charged for the goods and services supplied to him during the course of constructing the two homes. In respect of the house which was used by him personally, he entered on his VAT return, as output tax payable, an amount equal to the input tax deducted for the goods and services used in the construction of the house for private use. A dispute arose between the contractor and the Dutch tax authorities, who had raised a VAT assessment in a sum equal to 18% of the value of the land on the basis that under Dutch law VAT was imposed not only on the value of the house but also on the value of the land on which it had been constructed. The house and land being regarded as a single delivery of goods. The contractor appealed against the assessment, arguing that the land had always been part of his personal assets and had not become part of the business assets at the time the house was built.
The Hoge Raad der Nederlanden stayed the proceedings and made a reference to the European Court of Justice for a preliminary ruling as to whether article 5(6) of the EC Sixth VAT Directive (no 77/388) meant that a taxable person who acquired land solely for his private use subsequently erected on that land in the course of his business a dwelling-house and put that building together with the land on which it stood to his private use had applied goods forming part of his business assets for his private use within the meaning of the directive as regards not only the building but also the land on which it stood.
Article 5(6) provided that the application by a taxable person of goods forming part of his business assets for his private use or that of his staff, or the disposal thereof free of charge or their application for purposes other than those of his business, where the VAT on the goods in question was wholly or partly deductible, should be treated as supplies made for consideration. However, applications for the giving of samples or the making of gifts of small value for the purposes of the taxable person’s business should not be so treated.
Held The house and not the land should be treated as applied for private use.
1. When a taxable person acquired an asset solely for his personal use, he acted as a private individual and not as a taxpayer as defined in the Sixth Directive. Consequently, the various provisions of the directive concerning the acquisition of assets by a business did not apply.
2. Land which a building contractor owned in his private capacity and on which he built a home for himself in the course of his professional activities never formed part of his business assets and so could not have been taxable under article 5(6).
3. Accordingly, article 5(6) was to be interpreted as meaning that when a taxable person acquired land solely for his private use, but erected on it a dwelling-house in the course of his business for his own use, only the house and not the land on which it stood was to be regarded as having been applied for that private use for the purpose of the article.
Written submissions by B R Bot for the Dutch Government; E Roder for the German Government; J F Buhl and B J Drijber for the commission of the European Community. Oral submissions by J W De Zwaan for the Dutch Government and C-D Quassowski for the German Government.
