Dutch Real Estate Transfer Tax (RETT) is levied on the acquisition of an immovable property. Under the RETT, different tax rates apply to houses – these are subject to a reduced 2% rate – and other immovable property, which is subject to the general 6% rate. Transformation projects (projects in which offices, for example, are transformed into housing) are very common in the Netherlands. Immovable property or a right to immovable property sometimes is acquired by the buyer before the transformation is completed. The question is whether the 2% rate for houses is applicable. The Dutch Supreme Court recently ruled on this subject in three cases.
The facts in the three proceedings were comparable. In each, a buyer acquired a right to immovable property in a building that was originally built as an office. At the time of acquisition, demolition of the building was completed and the contractor had started the replacement of window frames. The dispute in the three cases was whether the 2% rate for houses was applicable or not. In all three cases the Dutch Court of Appeal ruled that the 2% rate was applicable.
The Dutch Supreme Court ruled that the 2% rate applies when renovations have been carried out that, even if they have not yet been fully completed, can justify the conclusion that those renovation activities are necessary for the creation of a house. If the immovable property (or part to which a right to immovable property relates) can be restored to its original purpose at the time of acquisition with no more than limited adjustments, the 2% rate does not apply. In one of the three cases, the Dutch Supreme Court further explained its rationale. According to the Supreme Court, the 2% rate applied because:
The ruling of the Dutch Supreme Court is important and favourable for the real estate market. In the case of transformation projects, it could well be that the 2% rate can be applied in an earlier stage, resulting in reduced costs for the party that bears the RETT.
Marco Beerens
marco.beerens@bdo.nl
Joost Vermeulen
joost.vermeulen@bdo.nl