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ECJ Ruling Unveiled: Member States' Authority To Classify Rights On Immovable Property As Deliverable Tangible Assets - My Vat Calculator

ECJ Ruling Unveiled: Member States’ Authority to Classify Rights on Immovable Property as Deliverable Tangible Assets

"ECJ Ruling in Goed Wonen Case Sets Precedent on VAT Treatment of Rights in Immovable Property"

ECJ Issues Decision in Case C-326/99 (“Goed Wonen”)
On October 4, 2001, the European Court of Justice (ECJ) issued its decision in the case C-326/99, commonly known as “Goed Wonen.” This case pertained to the interpretation of the Sixth VAT Directive and its application to the letting and leasing of immovable property. The ECJ’s decision provided clarity on the treatment of certain rights in rem in immovable property as tangible property capable of supply.

The Sixth VAT Directive, which was later replaced by the EU VAT Directive 2006/112/EC, outlined the power of Member States to treat certain interests in immovable property and rights in rem as tangible property. Article 15 of the directive stated that electricity, gas, heat, cooling energy, and similar items should be treated as tangible property. Member States were also given the option to regard certain interests in immovable property and rights in rem as tangible property. Additionally, Article 135 of the directive exempted the leasing or letting of immovable property, with some exclusions.

The case involved the Stichting “Goed Wonen,” the legal successor of the housing association Woningbouwvereniging “Goed Wonen.” In 1995, three newly-built housing complexes designed for letting were supplied to the housing association. The association then set up the Stichting “De Goede Wonen” and granted it a usufructuary right for a term of 10 years in return for a sum lower than the cost price of the dwellings. The GW Foundation commissioned the GW Association to manage the dwellings and carry out various tasks related to their maintenance and leasing.

In its tax return, the GW Association entered the VAT charged to the GW Foundation for the grant of the usufruct, as well as the VAT it had been charged for the construction of the dwellings. The association recouped a portion of the VAT based on its tax declaration. However, the Tax Inspector later issued a supplementary assessment, which the GW Association challenged before the Gerechtshof te Arnhem. The Gerechtshof upheld the assessment, ruling that the creation of the usufruct could not be considered a taxable transaction for VAT purposes.

The Hoge Raad der Nederlanden, the referring court in this case, sought clarification from the ECJ on whether the grant of a limited right such as usufruct constituted a supply of goods within the meaning of the VAT Law. The ECJ’s decision confirmed that the creation of the usufruct did not fall within the scope of taxable transactions for VAT purposes. The court also noted the close administrative association between the GW Association and the GW Foundation, which further supported the assimilation of the two entities.

In conclusion, the ECJ’s decision in the case C-326/99 (“Goed Wonen”) provided important guidance on the treatment of certain rights in rem in immovable property as tangible property capable of supply. The decision clarified that the grant of a limited right such as usufruct does not constitute a supply of goods for VAT purposes. This ruling has implications for the taxation of letting and leasing of immovable property in the European Union.

Barry Caldwell

Barry Caldwell

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