The ’adjustment period’ of immovable properties has been interpreted by the ECJ
C‑243/23. Drebers | For the purposes of the capital goods scheme, the adjustment period of the immovable property is also applicable for construction works covering the full renovation and alteration of a building provided that the useful economic life of the result of the renovation works is as long as that of a new building.
The subject of the case is a building where the 60% of the floor area was used by a law firm as an office with the remaining 40% being utilised as a dwelling by the owners of that law firm. Between 2007 and 2015, the law firm had both the interior and the façade fully reconstructed with new sealing on the walls and new pipes and cables for gas, water and electricity. A new glass annex was also built with offices and a lift shaft.
The Belgian legislator abolished the VAT-exemption on the legal services from 2014. For this reason, the law firm recovered the input VAT on the reconstruction and renovation costs, considering that the construction works constitute ‘capital goods’ for VAT purposes subject to the adjustment period of the ‘immovable properties’ (in Belgium, 15 years) which has not been passed since the first occupation. The Belgian tax authority rejected the VAT deduction on the ground that, according to the Belgian law, the adjustment period of movable properties (i.e., 5 years) are applicable for the newly-installed items as the renovation works did not result in ‘new occupation’ of the building.
The European Court of Justice took the view that although the construction works do not, per-se, constitute ‘capital goods’ for VAT purposes, Article 190 of the VAT Directive provides that member states may regard as capital goods those services which have characteristics similar to those normally attributed to capital goods. For this purpose, the useful economic life of the effect of the service is decisive.
The ECJ pointed out that if the duration of the useful economic life of the construction works is as long as that of a new building, the construction services bear the characteristics of an immovable property rather than a movable property. Accordingly, such construction works are to be treated as ‘immovable properties’ for the purposes of the capital goods scheme for which the longer adjustment period applies. The court also held that the taxable person may directly rely on Article 190 before the national court against the competent tax authority in order to have the extended adjustment period laid down for immovable property acquired as capital goods applied to the construction works, even if the result works are to be treated as ‘movable properties’ under the national law.
