EGC T-397/25 (A&P Deco) – AG Opinion – VAT deduction adjustment required even with business transfer and lease

On April 15, 2025, the General Court issued the AG Opinion in the case T-397/25 (A&P Deco).

Context: Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Adjustment of deduction — Transfer of all or part of an asset — Letting of the business building from the transferor to the beneficiary

Summary

Facts: A&P Deco NV, a garden center operator, transferred its business to WR Woestijnroos BV in 2013. A&P Deco retained ownership of the business building but rented it to WR Woestijnroos, which continued the garden center operations. A&P Deco had claimed input VAT deduction for the construction and renovation of the building. The Belgian tax administration adjusted this deduction proportionally for the period the building was rented out tax-free.
Issue: The core question is whether the transfer of a business (under VAT Directive Article 19 concerning transfer of a going concern) combined with the leasing of the associated business building by the transferor to the transferee (who continues the same VAT-taxable activity) exempts the transferor from adjusting their initial input VAT deduction for the building.
AG Opinion: Advocate General Maja Brkan proposes that the VAT Directive (Articles 19, 29, and 184 et seq.) should be interpreted such that a taxable person remains obliged to adjust input VAT for a business building, even if it is rented tax-free to the beneficiary of a transfer of a going concern.
Justification of AG Opinion (Part 1 – Conditions for Article 19/29): The AG argues that a lease agreement for a business property does not constitute part of a transfer of a going concern under Articles 19 and 29 of the VAT Directive. Article 19 specifically refers to the supply of goods, and leasing is a service. While Article 29 extends this to services, it applies to the transfer of existing assets, not the creation of a new, ongoing contractual relationship like a lease. Previous case law (Schriever) allowing a lease alongside a transfer of other assets did not imply the lease itself was part of the transfer for VAT purposes. Including leasing would contradict the purpose of Article 19/29, which is to simplify one-off business transfers, not to exempt continuous future services (rent) from VAT.
Justification of AG Opinion (Part 2 – Consequences and Neutrality): Even if a lease were considered part of the transfer, it would not change the adjustment obligation. The transferor would still no longer use the property for VAT-taxable activities (as leasing is generally tax-exempt), thus changing the factors for input VAT deduction (Article 185). The legal succession principle in Article 19 only applies to what was transferred; the transferor remains the legal owner for VAT purposes regarding the property. Furthermore, adhering to the adjustment mechanism upholds the principle of VAT neutrality, ensuring that input VAT is only deductible for activities subject to VAT, and treating the transferor fairly compared to any other lessor.

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?

AG Opinion

Articles 19 and 29 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

are to be interpreted as meaning that:

a taxable person remains required, on the basis of Article 184 et seq. of the Directive, to adjust input VAT with regard to the acquisition, construction, conversion or renovation of a business building, even if the business building is to be classified as a transfer of all or part of a business within the meaning of Articles 19 and 29 of that directive at the same time as the transfer of the taxable business carried on in it; is rented out tax-free by the transferor to the beneficiary who continues the business.

Source

Curia

Comments AG Opinion

The AG proposes that the input VAT deduction must be adjusted. Her reasoning can be broken down into several key arguments:

1. General Principle of VAT Deduction Adjustment for Exempt Transactions The AG first establishes the fundamental principle:

“As a preliminary point, it should be noted that, in principle, under Article 184 et seq. of the VAT Directive, an adjustment of the deduction of input VAT on the acquisition, construction, conversion or renovation of a business building must be made from the date on which it is rented out free of charge.” (Para 20)
The change from using property for taxable activities to tax-exempt leasing constitutes a change in “factors” under Article 185(1), triggering the adjustment. The obligation to adjust rests with the person who initially made the deduction.

2. Articles 19 and 29 Do Not Apply to the Leasing of Property

The core of the AG’s argument is that the leasing of the business property does not fall within the scope of Articles 19 and 29 of the VAT Directive.

Leasing is a Supply of Services, Not Goods: Article 19 explicitly refers to the “supply of goods.” Leasing, however, is a “supply of services” (Article 24), as it involves a temporary granting of use, not the transfer of the right to dispose of tangible property “as owner” (Article 14(1)).
“I consider, first of all, that Article 19 of the VAT Directive does not apply to the letting of goods. According to this provision, the transfer of a whole or part of a property must consist of the supply of goods. This is because the provision contains the fiction that such a transfer is to be ‘treated, i.e. whether there is no supply of goods’, which would otherwise exist.” (Para 31)
Article 29’s Extension to Services is Limited: While Article 29 extends Article 19 to “services under the same conditions,” the AG argues this only applies to services “consisting in the transfer of an existing asset,” such as the assignment of rights (Article 25(a)). A lease agreement creates a “new continuing obligation” and “does not transfer any assets already existing in the assets of the transferor” nor is it a “one-time transfer of a right, but a time-related, renewable granting of use.” (Para 34)
Distinguishing the Schriever Case: The AG clarifies that previous case-law (e.g., Schriever), which involved the transfer of stock/fittings and simultaneous leasing of a shop, did not imply that the lease itself was part of the Article 19 transfer. Rather, the lease might be a prerequisite for establishing the business continuity required for Article 19 to apply to the other assets transferred, but it is not part of the transfer of assets itself.
“The letting of commercial immovable property by the transferor may therefore be a prerequisite for the transfer of business assets to constitute a transfer of all or part of an asset within the meaning of Article 19 of the VAT Directive… but it is not itself part of that transfer.” (Para 37)
Purpose of Article 19/29: Including a lease within the scope of Article 19/29 would contradict its purpose of simplifying one-off business transfers. It would result in the permanent VAT exemption of “a large number of future services” (periodic lease payments), which is beyond the directive’s intent for “a one-off transfer transaction.” (Para 39)

3. Legal Consequences of Article 19/29 (Even if Applicable to Lease) Do Not Prevent Adjustment

Even if, contrary to her primary argument, Articles 19 and 29 were deemed to cover the leasing of commercial immovable property, the AG asserts that an adjustment of deduction would still be necessary.

“No Supply” Fiction: If the lease were treated as “no supply,” it would mean no taxable transaction takes place. This would still mean the transferor “would no longer use the commercial property for taxable transactions from the time of letting.” (Para 42). Consequently, the condition for deduction under Article 168 (use for taxable transactions) would no longer be met, leading to an adjustment under Article 185(1). The Faxworld case is distinguished as it concerned a pre-founding company’s input VAT for its successor’s taxable output.
“Legal Successor” Principle: The AG argues that the beneficiary being regarded as the legal successor is a consequence of the “no supply” fiction, not an independent basis to avoid adjustment. Furthermore, “the beneficiary could succeed a right of the transferor only to the extent that a right had been transferred. On the basis of a lease agreement, however, there would only be a temporary granting of the use of the commercial property.” (Para 47). Since the transferor retains ownership, they remain the VAT holder in respect of the property and are subject to adjustment rules.

4. Alignment with the Principle of Fiscal Neutrality

The AG emphasizes that her interpretation is consistent with the principle of fiscal neutrality.

Adjustment Mechanism Ensures Neutrality: The VAT adjustment mechanism (Article 184 et seq.) is designed “to ensure the neutrality of VAT by increasing the accuracy of deductions.” Allowing an initial deduction to stand when goods are subsequently used for non-taxable transactions would “undermine the neutrality of VAT.” (Para 50)
Equal Treatment: Treating the transferor who leases the property differently from any other landlord who rents out a commercial property (and is not entitled to input VAT deduction for tax-exempt leasing) would violate the principle of equal treatment.
“On the contrary, it would therefore violate the principle of fiscal neutrality if a landlord would continue to be entitled to deduct input VAT with regard to the acquisition cost of a property only if he rents out his property in the context of the transfer of a whole or part of a property.” (Para 51)

Reference to other ECJ Cases

C-444/10, Schriever (Judgment of 10 November 2011): Ruled that transferring stock and equipment while simultaneously leasing premises to the buyer constitutes a transfer of a going concern under Article 19, provided sufficient assets are transferred for the transferee to continue an independent economic activity.
C-791/18, Stichting Schoonzicht (Judgment of 17 September 2020): Affirmed that input VAT deduction adjustment is necessary when a property, initially used for taxable supplies, is subsequently used for tax-exempt activities, such as tax-free letting.
C-293/21, Vittamed technologijos (Judgment of 6 October 2022): Reiterated the principle that a change in the use of capital goods from taxable to tax-exempt activities necessitates an adjustment of the initial input VAT deduction.
C-201/18, Mydibel (Judgment of 27 March 2019): Concerned “sale and lease-back” arrangements where the original owner/user remained in possession. The Court clarified the VAT treatment of such transactions regarding input tax deduction and adjustment for continued taxable use.
C-787/18, Sögård Fastigheter (Judgment of 26 November 2020): Addressed the input VAT deduction rights for the acquisition of a property when it is subsequently used for both taxable and tax-exempt activities, and clarified who is liable for adjustments.
T-646/24, MS KLJUČAROVCI (Judgment of 3 December 2025): Interpreted the definition of “supply of goods” under the VAT Directive as the transfer of the right to dispose of tangible property as owner, encompassing effective control rather than merely legal ownership.
C-17/18, Mailat (Judgment of 19 December 2018): Confirmed that merely leasing out all business assets does not constitute a transfer of a going concern under Article 19, as it does not involve the transfer of ownership of those assets.
C-278/18, Sequeira Mesquita (Judgment of 28 February 2019): Clarified that a transaction involving only the rental of movable and immovable property for a limited period does not fall under the concept of a transfer of a going concern.
C-497/01, Zita Modes (Judgment of 27 November 2003): Stated that the purpose of Article 19 (then Article 5(8) of the Sixth Directive) is to facilitate business transfers by avoiding a significant upfront VAT burden for the transferee, which would otherwise be recovered later.
C-729/21, W. (Order of 16 January 2023): Reiterated that the beneficiary’s legal succession under Article 19 is a mere consequence of the fiction that no supply took place, not an independent legal effect regarding input VAT adjustments.
C-137/02, Faxworld (Judgment of 29 April 2004): Allowed input VAT deduction for a pre-incorporation company that only prepared for a taxable activity, as its services were ultimately for the taxable output of the new company.
C-429/23, NAREBG (Judgment of 12 September 2024): Emphasized that the VAT adjustment mechanism (Articles 184 et seq.) ensures VAT neutrality by aligning the initial input tax deduction with the actual use of goods/services for taxable transactions.
C-182/20, Administraţia Judeţeană a Finanţelor Publice Suceava and Others (Judgment of 3 June 2021): Reinforced that the right to deduct input VAT is conditional on the goods and services being used for the taxable transactions of the taxable person.
C-243/23, Drebers (Judgment of 12 September 2024): Affirmed the principle that input VAT deduction is intrinsically linked to the use of goods and services for taxable transactions, ensuring the neutrality of the VAT system.
C-519/21, DGRFP Cluj (Judgment of 16 February 2023): Discussed the principle of fiscal neutrality, including its aspect of equal treatment, which requires similar transactions to be treated similarly for VAT purposes.