VAT deduction | adjustment on services | equal to immovable property | Court of Justice C-243/23 - Drebers

In September 2024, the Court of Justice (ECJ) made an important ruling in the Drebers case in the area of ​​real estate, VAT deduction and adjustment of that deduction if it concerns services (such as renovation services). This ruling does not yet have any effect on the current VAT legislation in the Netherlands. That will change in 2026. Below, we will first briefly discuss the upcoming changes in the Netherlands. Then we will provide an explanation of the ruling in the Drebers case.

Changes in the Netherlands

Earlier this year, it was announced that the VAT legislation will be amended with regard to the VAT deduction on certain services. See our news item from March 2024 for more information. The proposal for a change in the law has now been formally announced via the publication of the Tax Plan 2025. You can read a further explanation of these plans in our news item about Budget Day.

In short, the proposed change comes down to this. The VAT deduction on certain services defined by law relating to immovable property (the ‘investment service’) will fall under the adjustment scheme. This means that the VAT deduction when purchasing this service is not yet final. The VAT deduction will depend on the use of the investment service, for a period of 5 years. The intention is that this change, based on a transitional arrangement, will take effect in 2026. However, this does not mean that it only concerns services purchased from 2026 onwards. The change may also concern investment services purchased in 2025.

The rules for the adjustment of VAT deduction will then look as follows as of 2026:

• 5-year adjustment to investment services
• 5-year adjustment to movable property that can be depreciated
• 10-year adjustment to immovable property

ECJ – ruling in the Drebers case

The ruling of the ECJ in the Drebers case concerns a case from Belgium. In Belgium, an adjustment scheme for certain services has been in place for some time. The adjustment scheme for services lasts for 5 years. For immovable property, the adjustment scheme lasts for 15 years.

The interested party had renovation work carried out on a building in Belgium. This work (services) fell under the adjustment rules applicable in Belgium (5 years). At the time of the work, the interested party was not entitled to deduct VAT. Later, after completion of the work, the interested party was able to deduct VAT on the basis of a change in the law. However, the period between the work and the change in the law was longer than 5 years. The interested party was therefore not able to deduct (part of) the VAT by invoking the adjustment rules, as the 5-year term for services had expired. The interested party therefore invoked the adjustment rules for immovable property (15 years). The question before the ECJ was whether the interested party can rely on the longer adjustment period of 15 years for immovable property, despite the fact that the interested party is concerned with services. The interested party's argument was that (in short) given the size of the costs (approx. € 2 million) and the major work, the services should be equated with immovable property.

The ECJ determined that the work purchased by the interested party concerns services and therefore does not fall under adjustment of immovable property and therefore also not under the longer adjustment period of 15 years. However, if the services have the same characteristics as immovable property, for example in terms of economic lifespan, it would be illogical to treat these services differently from immovable property. With this ruling, the ECJ makes it possible for services to also fall under the longer adjustment period for immovable property. Furthermore, the ECJ determines that although Member States themselves have the right to determine in national legislation (to a certain extent) how the adjustment scheme should apply, entrepreneurs have the possibility to directly rely on the European VAT Directive if, based on national legislation, there is no possibility to apply the extended adjustment period for immovable property to services.

Ruling Dreber case - effect in the Netherlands

If we then look again at the proposed amendment in the Netherlands to only link investment services to an adjustment period of 5 years, we expect a similar discussion in the Netherlands if this period is maintained. In other words, discussions about an adjustment period of 10 years, even if it concerns investment services.

We also note that the adjustment scheme has two ‘faces’. It can still provide entrepreneurs with an additional VAT refund if the ratio between VAT-exempt and VAT-taxed use of the goods and services changes. However, it can also lead to the repayment of the VAT that was previously deducted.

Finally, this last remark. This ruling resembles a discussion that has been going on in the Netherlands for some time. Namely the question whether a major conversion and/or renovation can lead to a newly constructed immovable property for VAT (‘essentially new construction’ discussion). The ruling of the ECJ in the Drebers case does not relate to this discussion. By the way, the discussion on this point (‘essentially new construction’) is still ongoing in the Netherlands (see news item).

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com