SAC: When does advance payment trigger obligation to declare VAT?

In the case at hand, a company involved in a development project received advance payments on commissions for real estate services relating to the future sale of real estate. The tax authority claimed that the company should have declared VAT on these advances. The matter reached the regional court, which stated that, for VAT to be payable on an advance, the following conditions must be met cumulatively:

1. the taxable supply to which the advance relates must be clearly defined; and
    
2. the taxpayer must not have a knowledge that it is uncertain whether the supply is to be carried out in the future (a condition derived from the case law of the Court of Justice of the EU).
    

Given that, at the time the brokerage agreement for the sale of real estate was concluded, the municipality’s zoning plan did not allow the intended construction, the regional court concluded that the agreement’s effectiveness depended on an uncertain future event (approval of the zoning plan) and that the second condition was therefore not met in this case.

The SAC, however, assessed the case differently, emphasising that a taxable supply is “sufficiently specific” if the following is known:

• the goods to be supplied, or the service to be provided,
• the VAT rate, and
• the place of supply.
   

In the case at hand, these characteristics were met as of the date the advances were received, which the regional court did not dispute, as it only pointed to the uncertainty as to whether the taxable supply would actually take place.

The SAC held that, for an obligation to declare VAT on a received advance payment to arise, the only material factor is that the advance relates to a precisely determined taxable supply. The requirement that the supply be specifically identified must not be confused with a requirement of certainty of its future performance. CJEU case law does not require that there be sufficient certainty that the taxable supply will definitely occur in the future for the obligation to declare VAT to arise.

According to the SAC, the risk that the zoning plan will not be approved in a form allowing construction is a normal business risk and, in itself, has no impact on the origination of the obligation to declare VAT on an advance payment received. The SAC therefore concluded that the received payments constituted advances for a sufficiently specific taxable supply and that VAT should therefore have been charged on them. It consequently dismissed the regional court’s judgment and remitted the case for further proceedings.