A managing director had been involved in the bankruptcy of some companies, which has led to the prosecution of the managing director. The managing director was assisted by a law firm. The interested party, a BV that is also owned/managed by the managing director, has instructed the law firm to do so. The law firm has issued invoices to the interested party. The interested party has paid these invoices and deducted them in its VAT returns.
The lower courts have ruled that the interested party is not the recipient of the legal services and that it has therefore incorrectly deducted the VAT amounts stated on the invoices.
According to the Dutch Supreme Court, it cannot be excluded that the requirements of the business of the interested party necessitated the purchase of the legal services, because it had no other actual possibilities to secure the continuation of its economic activity. In that case, it must be assumed that the legal services are directly related to the entire economic activity of the interested party. The fact that the managing director also benefited personally from the legal services, does not alter this.
The Dutch Supreme Court refers the case back to the local court. The court of reference should take the following into account:
- The lower court has determined that the Tax Authorities acknowledge that the invoices were addressed to the interested party, and that the interested party has entered into the legal agreement with the law firm. The lower courts also concluded from a letter from the law firm, that the invoices were paid by the interested party. These findings and this conclusion, which have not been contested before the Supreme Court, do not allow any other conclusion than that the interested party is the recipient of the legal services.
- The specific VAT deduction limitation regulation (“BUA”) in the Netherlands excludes the deduction of VAT insofar as the goods or services are used for the personal purposes of the personnel. In principle, such services include legal assistance in the criminal prosecution of employees. However, this does not apply if special circumstances compel the employer to purchase the services. This exception occurs if the costs for those services are primarily incurred in the interest of the company and the personal benefit of the employee, if any, is of secondary importance to the employer.
- If – after referral – it is established that the requirements of the company of the interested party made it necessary for the interested party to purchase the legal services, it must be assumed that special circumstances have compelled the interested party to purchase those services, so that the BUA does not apply.
Source: rechtspraak.nl
Author: Joyce Westerveld, VAT Advisor at RED
