Movable or immovable? A complex differentiation in the area of VAT!

A complex task in the area of VAT

Determining the difference between movable and immovable goods or property is often a complex task in the area of VAT. One must consider all the relevant facts and circumstances of the specific case. Additionally, it is key to keep an eye on the court rulings of the European Court of Justice. Even then it sometimes may feel like going through labyrinthine mazes.

Why is this difference relevant for VAT?

For VAT purposes the difference between movable goods and immovable goods (or property) is of great importance for two main issues.

Firstly, movable goods are subject to different VAT-rules and -regulations compared to immovable goods. For example, the letting or leasing of movable goods, such as certain types of machinery, caravans or some sorts of motorhomes constitutes taxable transactions subject to VAT. On the other hand, the sale or rental of immovable property may be exempt from VAT. However, immovable property is not always exempt. The supply, before first occupation, of a building and of the land on which the building stands is subject to VAT. This is the case for newly-built homes, apartments and offices. For the sale or rent of commercial premises between businesses it is sometimes possible to opt for taxation.

Secondly, immovable goods, such as parcels of land, office buildings, houses or certain other types of buildings, are subject to different place of supply rules. The place of supply of services connected with immovable property, such services connected to buildings, parcels of land and roads, is the place where the immovable property is located. In such situations national VAT law applies to determine the correct VAT consequences.

What is considered to be “immovable”?

The Court of Justice of the European Union provided some criteria in several landmark cases. Following these cases the following criteria must be met in order to qualify goods as “immovable”:

• One of the essential characteristics of immovable property is that it is attached to a specific part of the earth’s surface. A piece of land which is permanently delimited, even if it is underwater, can be classified as immovable property;
• Buildings made of structures fixed to or in the ground – which cannot be easily dismantled – must be regarded as immovable property;
• It is of great importance that the structures cannot be easily dismantled or easily moved. That is to say without effort and considerable cost. Nevertheless, there is no need for them to be inseverable fixed to or in the ground. Nor is the term of the lease decisive for the purpose of determining whether the buildings at issue are movable or immovable property;
• Also a characteristic is that immovable objects are made to stay in a demarcated and identifiable location for a durable amount of time.

Complications in practice

Difficulties in practice arise in particular where it comes to objects or goods which cannot be easily qualified as movable nor immovable. For instance, cables which are placed in seabed’s, oil pipelines, offshore jack-up drilling platforms and drilling rigs, chalets, cottages and several underwater structures. In order to determine whether your supply is subject to VAT and where it is subject to VAT these major questions must be answered.

Consult our specialists

It is strongly advised to carefully examine the relevant facts and circumstances of your case. Please keep an eye on our website or contact our international VAT specialist.