CJEU: are building foundations a residential structure?
In its judgment, the Court of Justice of the European Union stated that land with the foundations of a residential housing structure is still regarded as building land. The connection of the plots to utilities does not have the effect of changing its qualification as land.
A Danish company acquired land which they subsequently subdivided and built utility connections on the plots. After obtaining a building permit, the company started to cast foundations. Subsequently, the company sold the plots and treated the transaction as a supply of a structure exempt from VAT, as Danish legislation at the time treated the supply of building land as a transaction subject to VAT, and the supply of a structure as a transaction exempt from VAT.
According to the VAT Directive, a building is characterised by being able to be occupied and used for that purpose. On the other hand, building land means any undeveloped or developed land defined as building land by the member states. However, it is necessary to comply with the objective pursued by the VAT Directive, which is to exempt from VAT only supplies of land which has not been built on and is not intended for building. The CJEU emphasised that land on which a structure is located that must be classified as a building under the VAT Directive cannot be regarded as building land.
At the time of the supply, only the foundations of residential housing structures were located on the land. It was therefore necessary to determine whether those foundations as such constitute buildings whose supply prior to their first occupation would be subject to VAT. In the light of the VAT Directive, the criterion of first occupation of a building must be understood as corresponding to the first use of the property by its owner or tenant or the point at which it may leave the construction process to enter the field of consumption.
According to the CJEU, the modification of land, such as its connection to utility networks, cannot lead to a change in the legal classification of that land as a building, i.e., as a structure fixed to the ground by its foundations. The foundations of residential housing structures cannot be qualified as a building or its part. For this reason, the CJEU concluded that if just the foundations of a residential structure are located on the land, it should be regarded as a building plot subject to tax.