VAT adjustment rules for expensive services as of 1 January 2018
On 18 May 2017, the State Secretary of Finance (“Secretary”) published his proposal to change the current VAT adjustment rules in the Netherlands. It involves expensive services that are used during a longer period of time and that are normally activated on a company’s balance sheet. In case the use of the expensive services deviates from the use in the year of first use of those services the VAT needs to be adjusted, which may result in a VAT payment or an additional VAT deduction.
29 May 2017
The proposal of the Secretary may have a major impact on the VAT position of taxpayers and the processing of expensive services in the administrative systems, as, as a rule, the VAT deduction for services becomes final at the end of the year of first use.
Proposal State Secretary of Finance
Expensive services are, according to the Secretary, services that are used over a longer period and need to be activated on the balance sheet.
The Secretary’s proposal states that it concerns services subject to depreciation for income or company tax purposes. More particularly, examples of expensive services could be the purchase of certain brand names, computer software, patents and certain property investments.
The adjustment period for services relating to immovable property will be 10 years, e.g. a renovation that has not led to a newly constructed immovable property. The adjustment period for other types of services is 5 years.
The reason to change the VAT adjustment rules for expensive services is two-sided. On the one hand, the aim is to deal with expensive services similar to capital goods, which are already subject to a VAT adjustment period. Additionally, the extension of existing VAT adjustment rules aims to minimize "tax planning" of expensive services, which would be detrimental to the Treasury. Such tax planning could, for example, consist of optimizing the VAT deduction of the purchased expensive services by using them for tax purposes only in the year of first use, and in the following years for VAT-exempt purposes.
The intended date of effect of the proposal is 1 January 2018.
If the VAT adjustment rules were to be extended to expensive services, this would have a major impact on existing practice, as, as mentioned, expensive services are currently not subject to any adjustment. A change in the administrative systems will be required to clarify VAT adjustments on expensive services.
The proposal states that there will be no transitional rules. This raises the question to what extent already purchased expensive services taken into use in the period 2014-2017 will be affected by the extension of the existing VAT adjustment rules as of 1 January 2018. With regard to services relating to immovable property this would concern the period 2009-2017 in which these services taken into use. This begs the question whether this is possible, taking into account the principle of legal certainty, amongst others.