CJEU on the VAT treatment of real property sales

Belgian companies Immo 2020 and Promo 54 owned a building of a former school, which they intended to convert into apartments and offices. The sale of the future apartments took place in two steps. Immo 2020 sold to the buyers a part of the building that was to be converted into apartments, and Promo 54 concluded a contract for work with the buyers for the renovation work. The Belgian tax authorities took the view that the transaction was in fact a single supply of new apartments, subject to VAT at the standard rate.

The court dealt with the following question: is it possible to exempt from VAT the supply of a converted building which had been already occupied before the conversion if the member state has not provided in its legislation that the condition of ‘first occupation’ of the building also applies to buildings after conversion?

The CJEU specified that the reason for the exemption of the supply of immovable property after its first occupation is that such a supply does not generate any significant added value (unlike the first supply of immovable property). The supply of a building that has been converted does generate significant added value, therefore, according to the CJEU, it meets the ‘first occupation’ criterion and is generally to be taxed. In the commented case, however, the member state did not define in its legislation the conditions for taxation of the supply of a building after conversion, hence the CJEU concluded that the supply of the building could in the case at hand be exempt from VAT.

To correctly determine the VAT treatment of a sale of immovable property, we recommend assessing the conditions and circumstances of the transaction on an individual basis. In the light of the CJEU's case law, the buyers' known intention when purchasing the property may also have an impact on the tax assessment.