EGC T-397/25 (A&P Deco) – Judgment – Exempt letting after a TOGC triggers the transferor’s VAT adjustment

Slide deck T-397/25

On 2 September 2026, the General Court (Second Chamber, sitting with five Judges) released its judgment in case T‑397/25 (A&P Deco NV v Belgische Staat), on a reference for a preliminary ruling transmitted to the General Court by the Court of Justice on 20 June 2025 pursuant to the third paragraph of Article 50b of the Statute.

Context

The reference, made under Article 267 TFEU by the Hof van Cassatie (Court of Cassation, Belgium) by decision of 23 May 2025, concerns the interpretation of Articles 14, 19, 24, 29 and 184 to 190 of Council Directive 2006/112/EC (the VAT Directive) and of the principle of VAT neutrality (referred to as anchored in Article 1(2) of that directive). The dispute arises from a transfer of a totality of assets (Article 19, extended to services by Article 29) under which A&P Deco, a VAT taxable person operating a garden centre in premises it had constructed (2004–2005) and renovated (2008–2011) — deducting the input VAT — transferred its business on 23 January 2013 to WR Woestijnroos BV and, on the same day, let the business premises, VAT‑exempt under Article 135(1)(l) VAT Directive and Article 44(3)(2) of the Belgian VAT Code, to that transferee, which continued the garden‑centre activity there. The Belgian tax administration carried out a pro rata temporis adjustment of the initially deducted VAT (Articles 184 to 190; national adjustment period of 15 years for buildings under Article 9 of Royal Decree No 3), taking the view that the exempt letting changed the use of the property. The precise legal mechanism in dispute is whether the successor fiction in Articles 19 and 29 (transferee “treated as the successor to the transferor”) transfers the adjustment obligation to the transferee, thereby relieving the transferor‑landlord of any obligation to adjust.

Questions Referred

There is a single question referred (paragraph 31):

Must Articles 14, 19, 24 and 29 and Articles 184 to 190 of the VAT Directive, as well as the principle of VAT neutrality laid down in Article 1(2) of that 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 by 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

An Opinion was delivered. Advocate General M. Brkan delivered her Opinion at the sitting on 15 April 2026. The judgment does not reproduce the operative wording of her proposed answer verbatim, but it relies on her reasoning at several points: that the exempt letting changes the factors relevant to determining the right to deduct, so that a proportional adjustment must be carried out (point 21); that Mydibel concerned a materially different situation and does not preclude adjustment here (point 22); and that granting a continued deduction while the property is used for non‑taxable transactions would undermine VAT neutrality, the transferor‑landlord being comparable to a third‑party lessor (points 50 and 51). The AG’s reasoning is thus aligned with the Court’s conclusion that the transferor must adjust; the exact text of her proposed answer is not set out in the source provided.

Decision

The ruling is a Judgment

The Court ruled on the single question that

Articles 14, 19, 24, 29 and 184 to 190 of the VAT Directive and the principle of VAT neutrality must be interpreted as meaning that an adjustment MUST be made by the transferor where, in the context of a transfer of a business as a transfer of a totality of assets, the transferor lets — VAT‑exempt — the immovable property to the transferee and that property continues to be used by the transferee for the taxable activity taken over. The adjustment relates to the VAT deducted on the acquisition, construction, renovation or improvement of that property.

In effect, EU law does not preclude (indeed requires) the national adjustment made by the Belgian tax administration: the successor fiction in Articles 19 and 29 does not transfer the adjustment obligation to the transferee, and the transferor‑landlord remains bound to adjust.

Argumentation

(Adjustment mechanism – Articles 184 to 190) The right of deduction (Article 167 et seq.) is a fundamental principle of the common VAT system, intended to relieve the taxable person entirely of the VAT burden and to ensure neutrality. Articles 184–185 set out the general conditions for adjustment, while Articles 187–189 provide specific rules for capital goods. The adjustment mechanism seeks a close and direct link between input deduction and use for taxable output transactions; an adjustment is required where the factors determining the right to deduct are subsequently altered — in particular where the goods are no longer used for transactions in respect of which VAT is deductible.

(Change of use through exempt letting) Because A&P Deco now lets part of the property VAT‑exempt (Article 135(1)(l) VAT Directive; Article 44(3)(2) VAT Code), the property is no longer used for taxable transactions. This constitutes a change in the factors determining the right to deduct, so a proportional adjustment of the initial deduction must be carried out.

(Distinction from Mydibel) The Mydibel case is distinguished: there the owner retained use of the property for taxable output transactions despite a sale‑and‑lease‑back. Here, property initially used for a taxable activity (the garden centre) is now used for an exempt transaction (letting), so the outcome differs.

(Who bears the adjustment) Following Sögård Fastigheter, the amounts due on adjustment must be paid by the taxable person who made the deduction. Requiring the tenant to adjust the landlord’s deduction would make the tenant liable for a tax debt on a transaction in which it had no involvement.

(Scope of the TOGC concept) A transfer of a totality of assets covers a business or independent part of an undertaking capable of independent economic activity (Mailat), and may occur even where premises are made available to the transferee by lease rather than transferred in ownership (Schriever). The transaction at issue can therefore be classified as a TOGC.

(The letting right is not part of the TOGC) An intangible element such as a letting right can form part of a TOGC only if it pre‑existed the transfer and was transferred as an element of the business. Where the transferor, as owner, concludes a new commercial lease with the transferee at the moment of transfer, it does not transfer a pre‑existing right but creates a new, time‑limited right, which therefore falls outside the TOGC.

(Scope of the successor fiction) The fiction that the recipient is treated as the successor (Articles 19/29; Zita Modes) is merely a consequence of the fact that no supply of goods or services is deemed to occur. It concerns only what is not treated as a supply; the creation of a new letting right is not such a transfer, so the fiction does not extend the transferee’s position to cover the transferor’s adjustment obligation.

(Distinction from Faxworld) Faxworld is distinguished: it concerned a Vorgründungsgesellschaft whose sole object was to prepare a company yet to be formed and which never intended to carry out its own taxable transactions; that narrow factual context does not apply here.

(Principle of fiscal neutrality) Neutrality reflects the general principle of equal treatment and precludes treating operators carrying out the same transactions differently. Maintaining the deduction while the goods are used for non‑taxable transactions would undermine neutrality (Suceava; Drebers). The transferor‑landlord is in a situation comparable to a third‑party lessor letting a commercial building to the transferee, who could not deduct input tax on those buildings — so requiring adjustment upholds, rather than breaches, neutrality.

References to Other ECJ Case Law

C‑429/23, NARE‑BG (EU:C:2024:742) — the right of deduction as a fundamental principle of the common VAT system and the neutrality it secures.
C‑518/14, Senatex (EU:C:2016:691) — deduction rules relieve the taxable person entirely of the VAT burden, ensuring neutrality of all economic activities in principle subject to VAT.
C‑201/18, Mydibel (EU:C:2019:254) — cited for the general (Arts 184–185) versus specific (Arts 187–189) adjustment rules and the purpose of the adjustment mechanism; distinguished on its facts (retained taxable use in a sale‑and‑lease‑back).
C‑791/18, Stichting Schoonzicht (EU:C:2020:731) — a proportional adjustment of the initial deduction is required where the property is no longer used for taxable transactions.
C‑787/18, Sögård Fastigheter (EU:C:2020:964) — the adjustment must be borne by the taxable person who made the deduction; the tenant cannot be required to adjust the landlord’s deduction.
C‑651/11, X (EU:C:2013:346) — where the Article 19 option is exercised, a TOGC is not a supply of goods/services and is not subject to VAT under Article 2.
C‑729/21, Dyrektor Izby Administracji Skarbowej w Łodzi (order, EU:C:2023:74) — TOGC not treated as a supply; the successor fiction is a consequence of that treatment.
C‑17/18, Mailat (EU:C:2018:1038) — meaning of “transfer of a totality of assets”; the identity between Article 19 and Article 5(8) of the Sixth Directive allowing prior case‑law to be transposed mutatis mutandis.
C‑444/10, Schriever (EU:C:2011:724) — a TOGC can occur even where premises are made available by a lease rather than by transfer of ownership.
C‑497/01, Zita Modes (EU:C:2003:644) — the successor fiction is merely the result of no supply being deemed to take place.
C‑137/02, Faxworld (EU:C:2004:267) — deduction by a Vorgründungsgesellschaft transferring a totality of assets; distinguished as confined to its specific facts.
C‑182/20, Administraţia Judeţeană a Finanţelor Publice Suceava and Others (EU:C:2021:442) — retaining a deduction while goods are used for non‑taxable transactions undermines neutrality.
C‑243/23, Drebers (EU:C:2024:736) — same principle regarding neutrality and continued deduction.
T‑575/24, Digipolis (EU:T:2026:156) — VAT neutrality reflects the general principle of equal treatment, precluding different VAT treatment of operators carrying out the same transactions.

Source

Curia

Briefing Document: EU VAT Law – Business Transfers, Property Letting, and Deduction Adjustment

Date: October 26, 2023 Subject: Review of recent developments and a key General Court judgment concerning VAT implications of business transfers and exempt property letting.

I. Introduction to the EU VAT Landscape

Staying abreast of the evolving landscape of EU VAT law, particularly the rulings from the European Court of Justice (ECJ), Court of Justice of the European Union (CJEU), and General Court, is crucial for tax professionals. Resources like VATupdate.com serve as “your go-to hub for clear, timely, and expertly curated insights into the latest ECJ, CJEU, and General Court VAT rulings.” This platform aims to “cut through legal jargon and get straight to what matters” for professionals who “need to make informed decisions based on EU VAT case law.” As the source notes, for these individuals, “VATupdate.com isn’t just useful—it’s essential.”

The complexity of these legal interpretations is underscored by recent judgments, such as the General Court’s ruling on VAT adjustments following a business transfer combined with an exempt property letting.

II. Detailed Analysis of General Court Judgment: “VAT Adjustment: Business Transfer, Exempt Property Letting” (Case T-397/25)

This judgment, delivered on 2 September 2026, addresses a preliminary ruling requested by the Hof van Cassatie (Court of Cassation, Belgium) concerning the interpretation of key articles of Council Directive 2006/112/EC (the ‘VAT Directive’) and the principle of VAT neutrality.

A. Case Background and Core Legal Question

The case involves A&P Deco NV, a Belgian garden centre operator and VAT-taxable person. A&P Deco constructed and renovated business premises between 2004 and 2011, deducting input VAT on these transactions. In 2013, A&P Deco transferred its business (as a totality of assets) to WR Woestijnroos BV, another taxable person, under the special scheme provided by Article 19 of the VAT Directive (implemented by Article 11 of the Belgian VAT Code). Concurrently, A&P Deco let these same business premises to WR Woestijnroos, which continued the garden centre activity there. This letting activity is exempt from VAT under Article 135(1)(l) of the VAT Directive and national Belgian law.

The Belgian tax administration subsequently demanded that A&P Deco adjust its initially deducted VAT on the property works, arguing that the change to an exempt letting activity necessitated an adjustment. A&P Deco contested this, arguing that the special scheme for transfer of totality of assets should mean the adjustment obligation transfers to the transferee, or that no adjustment should be made by the transferor since the property continues to be used for the transferee’s taxable activity.

The core question before the Court was: “Must Articles 14, 19, 24, 29 and 184 to 190 of the [VAT Directive], as well as the principle of [VAT] neutrality… 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… 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?”

B. Relevant EU VAT Directive Provisions

The judgment focused on:

Article 19 & 29: Allows Member States to treat the “transfer of a totality of assets or part thereof” as “no supply of goods” or services, with the transferee “to be treated as the successor to the transferor.”
Article 135(1)(l): Exempts “the leasing or letting of immovable property” from VAT.
Articles 184-190: Govern the adjustment of initial VAT deductions, particularly for capital goods (like immovable property), where the factors determining the right to deduct change.
Article 168: Establishes the fundamental right to deduct input VAT.
Principle of VAT Neutrality: A foundational concept ensuring that taxable persons are relieved of the VAT burden, provided their activities are subject to VAT.

C. Court’s Key Findings and Rationale

The General Court systematically addressed the arguments:

VAT Deduction Adjustment Mechanism (Articles 184-190):

The Court reiterated that the right to deduct VAT is a “fundamental principle” aimed at achieving “neutrality of taxation.”
The adjustment mechanism is “intended to enhance the precision of deductions so as to ensure the neutrality of VAT,” ensuring “transactions effected at an earlier stage continue to give rise to the right to deduct only to the extent that they are used to make supplies subject to VAT.”
An adjustment is “necessary where… the taxable person no longer uses those goods for transactions in respect of which VAT is deductible.”
In A&P Deco’s case, the letting activity is VAT-exempt. This “leads to a change in the factors which must be taken into account in order to determine the right to deduct,” thus requiring “a proportional adjustment of the initial deduction of VAT.”
The Court distinguished this from the Mydibel case (C-201/18), where the owner retained use for taxable output transactions, unlike A&P Deco which switched to an exempt activity.
Crucially, the adjustment responsibility lies with the “landlord of immovable property” (A&P Deco) as the tax debt pertains to their economic activity; it cannot be transferred to the tenant/transferee.

Effect of the Special Scheme for Transfer of a Totality of Assets (Articles 19 & 29):

While these articles provide that “no supply of goods or services” takes place and the recipient is “to be treated as the successor to the transferor,” this fiction applies only to the assets transferred.
The Court clarified that a new commercial lease entered into concomitantly with the business transfer is not part of the “transfer of a totality of assets.”
A “letting right can be regarded as forming part of such a transfer only if it existed prior to that transfer and if it was transferred as an intangible element of the business.”
When the transferor, as owner, “enters into a new commercial lease with the transferee,” they “do not transfer a pre-existing right… but creates a new right limited in time.” Therefore, “such a right cannot be regarded as forming part of the transfer of a totality of assets.”
Consequently, the “letting right… does not form part of the transfer of a totality of goods or services within the meaning of Articles 19 and 29 of the VAT Directive.”
The transferor remains “bound by the obligation to adjust,” irrespective of the transferee continuing the taxable activity in the property.

Principle of Fiscal Neutrality:

The Court reiterated that granting an initial deduction without adjustment when goods are used for non-VAT transactions (like exempt letting) would “undermine the principle of neutrality of VAT.”
The distinction between letting and selling a building during a business transfer is valid. The transferor, by engaging in exempt letting, is in a comparable position to any third-party landlord who cannot deduct input VAT on their property.

D. Conclusion of the General Court

The General Court ruled: “Articles 14, 19, 24, 29 and 184 to 190 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and the principle of neutrality of VAT, must be interpreted as meaning that where, in the event of the transfer of a business as a transfer of a totality of assets, the transferor of that business lets, exempt from VAT, to the transferee, an immovable property and that property continues to be used by the transferee in respect of the exercise of the taxable activity taken over, an adjustment must be made, by the transferor, to the VAT deduction applied to the acquisition, construction, renovation or improvement of that immovable property.”

III. Key Takeaways and Broader Implications

Exempt Letting Triggers VAT Adjustment for Transferor: Even when a business is transferred as a totality of assets under the special Article 19/29 regime, if the transferor subsequently lets the immovable property to the transferee (and this letting is VAT-exempt), the transferor remains obligated to adjust the previously deducted input VAT on that property.
New Leases are Separate Transactions: The creation of a new commercial lease between the transferor and transferee is considered a separate transaction from the “transfer of a totality of assets.” It does not fall under the special VAT-exempt treatment of Articles 19/29, which applies only to the transfer of pre-existing assets or rights.
Strict Application of VAT Neutrality: The principle of VAT neutrality dictates that input VAT deductions are only maintained to the extent that the goods or services are used for taxable output transactions. A change to an exempt use (such as property letting) necessitates an adjustment.
Responsibility Stays with the Lessor: The obligation to adjust VAT deductions for exempt letting remains with the property owner/lessor (the transferor in this case) and cannot be shifted to the tenant/transferee, even if the latter uses the property for a taxable activity.
Importance for Business Restructurings: This ruling has significant implications for business transfers, particularly those involving real estate, where the transferor intends to retain ownership and lease the property back to the operating entity. Careful planning is required to assess the VAT impact on previous capital expenditure deductions.
Need for Expert Advice: The complexity demonstrated by this judgment underscores the value of specialized VAT insights, as highlighted by resources like VATupdate.com, to navigate the nuanced applications of EU VAT law.