General Court VAT Case T-397/25 (A&P Deco) – Questions – Should VAT adjustments apply when immovable property is leased after a business transfer?

Summary

Background of the Dispute: A&P Deco NV is appealing a tax administration decision that adjusted the VAT originally deducted on a building after its business activity changed from a VAT-subject garden center to a VAT-exempt letting. The case involves the interpretation of VAT regulations following the transfer of business assets.
Request for Preliminary Ruling: The Hof van Cassatie (Belgium) seeks clarification from the Court of Justice regarding the interpretation of several articles in the VAT Directive (2006/112/EC) and the principle of neutrality, specifically whether adjustments to VAT deductions are necessary when immovable property is leased rather than transferred.
Key Legal Questions: The court is asked to determine if, under the specified articles of the VAT Directive, no adjustment to VAT deductions is required for the transferor when the property is leased to the transferee, who continues to use it for taxable activities.
Arguments from A&P Deco: A&P Deco argues that the lease arrangement should be considered part of the totality of assets transferred, asserting that as long as the property is used for a taxable activity, there should be no change of use and thus no obligation to repay deducted VAT.
Counterarguments from Tax Administration: The tax administration contends that since A&P Deco retained ownership of the building and only leased it, the property remains an asset of A&P Deco, which now engages in exempt letting, necessitating an adjustment of the previously deducted VAT. The case highlights the complexities of VAT treatment in asset transfers and leasing arrangements.

Articles in the EU VAT Directive

Article 1(2): This article outlines the principle of neutrality of the VAT system.
Article 14(1): This article defines the supply of goods as the transfer of the right to dispose of tangible property as an owner.
Article 19: This article addresses the transfer of a totality of assets or part thereof, stating that there is no supply if the transferee succeeds the transferor.
Article 24(1): This article defines a service as any transaction that does not constitute a supply of goods.
Article 29: This article applies the provisions of Article 19 to services.
Articles 184 to 190: These articles cover the rules on the adjustment of VAT deductions.

Facts

Parties Involved: The case involves A&P Deco NV, a VAT taxpayer that previously operated a garden center, and the Belgian tax administration (Belgische Staat).
Business Transfer: On January 23, 2013, A&P Deco NV transferred its business to WR Woestijnroos BV. This transfer did not constitute a supply of goods under Article 11 of the Belgian VAT Code (Wetboek van de belasting over de toegevoegde waarde, WBTW).
Lease Agreement: Concurrently with the business transfer, A&P Deco NV leased the business premises to WR Woestijnroos BV through a commercial lease, allowing the transferee to continue operations.
VAT Administration Audit: Following an inspection, the tax administration adjusted the VAT originally deducted by A&P Deco NV on the building, citing a change of use. The leasing activity was deemed exempt from VAT under Article 44(3)(2) of the WBTW, resulting in the loss of the right to deduct VAT.
Correction Notices: The adjustment led to four correction notices and injunctions against A&P Deco NV, prompting the company to lodge an objection against the tax administration’s decision.
Court Proceedings: The Court of First Instance in Limburg rejected A&P Deco NV’s objection on February 13, 2020. This decision was upheld by the Court of Appeal in Antwerp on September 21, 2021.
Cassation Appeal: A&P Deco NV then filed an appeal in cassation, arguing that the building was essential for the continuation of the transferred activity and that the lease agreement should suffice to treat the building as part of the totality of assets transferred.
Legal Interpretation: The case raises questions regarding the interpretation of VAT laws, particularly concerning the obligations of the transferor in relation to VAT deductions when immovable property is leased rather than transferred outright. A&P Deco NV contends that the obligation to repay the deducted VAT should rest with the transferee as long as the property is used for a taxable activity.

Questions

Must Articles 14, 19, 24 and 29 and Articles 184 to 190 of the VAT Directive 2006/112/EC, as well as the principle of neutrality laid down in Article 1(2) of the
same directive, be interpreted as meaning that, where the possession of immovable property is made available by a commercial lease following the transfer of the business, no adjustment must be made to the transferor of the business, which is also the lessor of the immovable property, in respect of the deduction of the VAT charged on the acquisition, construction, renovation or improvement of the parts of the business premises leased to the transferee and further used by the transferee for the carrying on of the taxable activity taken over?

Source

Curia

Reference to other ECJ Cases

Schriever (C-444/10): This case involved the interpretation of the concept of “transfer of a totality of assets” in relation to VAT. A&P Deco NV cites this case to argue that the lease agreement should be sufficient for the building to be regarded as part of the totality of assets transferred, even if the ownership of the building was not transferred.
Mailat (C-17/18): This case also dealt with the transfer of assets and the implications for VAT treatment. A&P Deco NV refers to this judgment to bolster its claim that the continuing use of the building for a taxable activity means that there should be no change of use and, consequently, no obligation to repay the deducted VAT.