Application of the hardship clause upon acquisition of beneficial ownership of a building lot prior to legal transfer

The State Secretary for Finance has applied the hardship clause in a situation where transfer tax is due upon the acquisition of beneficial ownership prior to the legal transfer, which is subject to VAT by operation of law.  

By applying the hardship clause, the transfer tax due upon the acquisition of beneficial ownership is waived, subject to certain conditions.  

Background 

The case involved a situation in which the buyer had entered into a purchase agreement for the transfer of a building lot within the meaning of the VAT Act (i.e., undeveloped land that is clearly intended for development).  

The seller made the parcel of undeveloped land available to the buyer so that the buyer could begin construction of a new building.  

The transfer of the undeveloped land constitutes a (taxable) acquisition of beneficial ownership for transfer tax purposes. However, because the transfer of the undeveloped land does not yet result in a VAT-taxable supply at that time, the concurrent event exemption for transfer tax cannot be applied.  

A few months later, the seller transferred legal ownership of the building lot to the buyer. This acquisition constitutes a taxable event for both transfer tax and VAT. As a result, the buyer may apply the concurrent event exemption upon the legal transfer.  

Approval  

In this situation, where economic ownership is acquired first and the legal transfer—which is subject to VAT by operation of law—takes place shortly thereafter, the State Secretary for Finance approves It is appropriate that the transfer tax due in connection with the acquisition of beneficial ownership be waived.  

This requires that the following cumulative conditions be met:

1. It follows from the agreement that there is a close connection between the acquisition of economic and legal ownership;
    
2. The legal transfer of the building lot takes place within 3 months after the acquisition of economic ownership; 
    
3. At the time of the acquisition of beneficial ownership of the parcel of undeveloped land, this parcel qualifies as a building lot for VAT purposes;
    
4. DThe legal transfer is subject to VAT by operation of law;

    

5. Upon the acquisition of beneficial ownership, a transfer tax return was filed, and the transfer tax due was paid as reported on the return;

    

6. The legal transfer takes place before the new building constructed on the construction site is first put into use;

    

7. The concurrent event exemption applies to the legal transfer;

    

8. The transfer tax due upon the acquisition of beneficial ownership has not yet been irrevocably determined. 

Anyone who finds themselves in a similar situation and meets the aforementioned conditions may invoke the hardship clause by sending a letter to the Ministry of Finance. 

Implications for practice 

In practice, it is particularly important to keep a close eye on the three-month deadline. If this deadline is exceeded, the hardship clause can no longer be invoked. 

Do you have any questions regarding this notice? Please feel free to contact us through your account manager or by email at btw@govers.nl, or by phone at  040 – 2 504 504. Of course, you can also contact us with any other tax-related questions you may have.