A judgment of the European Court of Justice was recently published regarding the review period for renovation work done on a property.
The judgment concerns a law firm in Belgium that has carried out major renovation and conversion work on its building. At the time of the renovations, the law firm was not entitled to a VAT deduction, but due to changes in Belgian regulations, it will become an ordinary taxpayer with a right of deduction in 2014. As a result, the law firm is conducting a VAT review in its favour. Since the property has been substantially modified, it is applying the 15-year review period (and not the 5-year period).
The VAT administration does not agree with the law firm. It argues that the building is not new for VAT purposes after the works, making the 5-year period applicable. The law firm objects to this decision.
Eventually, the case reaches the European Court of Justice. It looks at the situation and decides that the 15-year period does apply. In order to determine the review period, the economic characteristics of the investments must be considered. If they are similar or identical to investments in a new building, the 15-year period applies. Because the law firm’s building had the same economic life of a new building after the renovation work, the 15-year period is valid.
It remains to be seen how the Belgian VAT administration will deal with this decision. In any case, it may have a major impact; in the case of a major renovation, the 15-year review period will apply “more quickly”. In this case, the review period of 15 years will be to the taxpayer’s advantage, but even more often it will be to the taxpayer’s disadvantage.
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