1

VAT on real estateIn general and international business case

Bas OpmeerAlexander MicheluttiAthens, 3 February 2011

2

Agenda

General questions 3Output cases 5Output cases – tax free 9Output cases – reverse charge 11Input cases – some topics 14The Case 15Relevant considerations 18

Place of service 19One service or separate services 24Immovable property services 25Calculation of the relevant fee 26

Page

3

Supply of Supply of goodsgoods

Supply of Supply of servicesservices

General questions

4

Distinguishoutput

and

input

supply of goods or services

General questions (2)

5

(Generally) place of supply = place of the real estate (“situs”)

German and Netherlands point of view

Output cases

6

1. Question: What is a supply of goods or services in case of a real estate?

• Only the supply in close economic relation to real estate, e.g.– sale of real estate– letting and leasing of real estate (also Hotel rooms and

Camping)– development of real estate (e.g., architecture, engineering)

German and Netherlands point of view

Output cases (2)

7

1. Question: What is a supply of goods or services in case of a real estate? (cont.)

Not (e.g.):– sale of the shares of real estate companies – advertising in newspapers– financing of the acquisition of real estate– legal- and tax-consulting in questions of a real estate (in

Germany: except notarization, i.e. situs related)

German and Netherlands point of view

Output cases (3)

8

2. Question: Is the supply VAT free?

Here: Sale or letting and leasing of real estate

German and Netherlands point of view

Output cases (4)

9

B2B

Sale

Reverse charge(foreign and domestic supplier)

„sale of a going-concern“

taxable and (optional) liable to VAT

not taxable taxable, but VAT-free

B2C

German point of view

Output cases – tax free

10

B2CB2B

Letting and Leasing

taxable, but VAT-free

taxable and liable to VAT

taxable, but VAT-free

option to VATpossible (Germany: new

buildings min. 95% VAT-able use of unit)

no option to VAT

German and Netherlands point of view

Output cases – tax free (2)

11

3. Question: Is there a reverse charge procedure applicable?

Depending on:• Type of supply• Place of establishment of supplier

German point of view

Output cases – reverse charge

12

B2B

construction services

taxable and liable to VAT

taxable and liable to VAT

taxable and liable to VAT

construction areaboth „B“ = construction

area

no construction areamax. one „B“ =

construction area

reverse chargeno reverse charge

supplier foreign supplier

German point of view

Output cases – reverse charge (2)

B2C

reverse charge no reverse charge

13

Other services (e.g. letting and leasing)• Only, if the supplier is a foreign company• German tax authorities:

in case of letting an leasing of German real estate supplier is a domestic company (only) for reverse charge

purposes

German point of view

Output cases – reverse charge (3)

14

• VAT-return in cases of mixed output supplies (VAT-liable and VAT-free)?

• Where is the place of supply in cases of a foreign investor?• Is the domestic real estate a PE for VAT-return purposes?

Input cases – some topics

German and Netherlands point of view

15

The case

UK based real estate investment fund Owns property in Germany, Netherlands, Denmark via SPV’s

in this countries SPV’s (investee companies) each own separate buildings• in their own jurisdiction; or• outside of their own jurisdiction

UK parent company (referred to as “Head Office”) and localoffice perform services to the investee companies

16

The case (2)Investment fund

SPV SPV SPV

Investor + Service

Investor + ServiceInvestor +

Service

17

The case (3)

Relevant services to be recognised acquisition services Management reporting Property management and leasing services Cash management Statutory reporting Tax compliance Valuations Insurance and risk management

18

Relevant considerations

Place of service:• B2B, or• Immovable property (including the services of estate

agents and experts and services for the preparation and coordination of construction work)

Place of business; One service or separate services

19

Place of service

B2B services are taxed at the place of business of the receiver of the services• Seat of the business activities• Permanent address• Address of usual residence

Immovable property: place where the property is located

20

Place of service (2)

Relevant discussion If (part of the) services are to be considered as B2B services• Seat of business activities/operations SPV’s:

Relevant factors:• Registered office of the business• Place of its central administration• Place where the management meets• Place where general policy of that business is

determined

21

Other relevant factors:• Place of residence of the main managers• Place where general meetings are held• Place where the administrative and accounting papers are kept• Place of banking transactions

(Source: Working paper VAT committee EC no 619; see also ECJ 28 June 2007 case C-73/06/Planzer)

• Not: registered office

Place of service (3)

22

Questions in this case: Actual seat of business activities in state of registered office Actual place of management SPV owns and operates the property Day to day business is ran locally It is very relevant how the management structure is

organised

Place of service (4)

23

Services related to immovable property: Exception to the main rule In this case very relevant because of the fact that

several SPV’s own property outside of their jurisdiction Registration of the supplier of the services of the

services necessary?• / : reverse charge applies

in fact same as B2B

no listing

Place of service (5)

24

One service or separate services

In this case there is a combination of services• Are separate services to be considered• Is one of the services predominant

• Absorption• Is it possible to split up the separate services

25

Immovable property services

/ : restrictive interpretation Factual connection between service rendered and property Directly connected with the property Includes services of experts and real estate agents

26

Calculation of the relevant fee

Point of departure Head office and local office perform at an asset management fee

of x basis points (%) Break down available transfer pricing calculations Can this be used? - is this fair market value/market price

- historical cost NL: Dutch High Court tends towards transfer pricing calculations

27

Bas Opmeer

Partner FSV Accountants + Adviseurs

Hogeweg 43

5301 LJ Zaltbommel, The Netherlands

b.opmeer@fsv.nl

www.fsv.nlPhone: +31 418 579 679Fax: +31 418 579 688

28

Alexander MicheluttiTax consulting for medium sized to large companies and its shareholders, including implementation and defense of tax efficient structures and forensic advice. VAT projects in banking, finance, real estate, public sector and engineering industry.

Deputy-Head of VAT Centre of Competence

German tax advisor (Steuerberater) Director

alexander.michelutti@ebnerstolz.dePhone: +49 711 2049 13 73Fax: +49 711 2049 12 20