CJEU requires an extension of the VAT adjustment period for significant construction works in Belgium
BelgiumDue to Belgium having implemented an option in the EU VAT Directive, construction works of such significance that they result in a building being classified as “new” under domestic VAT rules, are subject to a VAT adjustment period of 15-years. However, other construction works that could be considered similar but do not lead to a classification of the building as “new”, are only subject to a 5-year adjustment period, even where they involve a significant extension and/or substantial renovation and have an economic useful life similar to that of a new building. In the case referred to the CJEU, further to a change in the VAT status of its activities, a taxable person had applied the extended 15-year VAT adjustment period (to reclaim up to 1/15th per year of the historical input VAT for years still open) rather than the ordinary 5-year period (which had already fully expired). The Belgian tax authorities challenged this position upon audit and litigation ensued).
Relying on the principle of fiscal neutrality, the CJEU found that the Belgian domestic law implementation of the VAT Directive was defective and that the relevant provisions of the VAT Directive had a direct effect. This should allow a taxable person to rely on the VAT Directive against national authorities in order to benefit from the extended VAT adjustment period for significant construction works.
Key takeaway
Taxable persons whose VAT recovery rate has increased since purchasing significant construction works (or since the end of the standard 5-year VAT adjustment period if applied) may want to assess whether the new case law allows them to recover additional (historical) input VAT. Going forward, taxable persons who are contemplating contracting for significant construction works should anticipate a possible amendment of Belgian domestic law to (generally) apply a 15-year adjustment period.
