FS VAT Alert 2009/5 - Discussions with Dutch tax authorities regarding VAT recovery method for financial institutions

17 June 2009

Summary

This FS VAT Alert provides an overview of the VAT Developments in the Financial Services sector in Europe. Financial institutions should check the VAT recovery (pro rata) method which has been applied in the last five years, as there may be an opportunity to improve VAT recovery.

Full article

There are currently ongoing discussions between the Dutch tax authorities and financial institutions that have effectively applied two VAT recovery methods.

The financial institution first applies a VAT recovery percentage, calculated on the basis of taxable turnover (including non-EU), to VAT incurred on general overheads. In addition, another VAT recovery percentage is applied, calculated on the basis of use (usually floor space), to VAT incurred on specific service costs related to the building(s) occupied by the business, for example, service charges, security and catering space.

The Dutch tax authorities are now discussing such calculations, arguing that the financial institution can only apply one calculated percentage in one tax period and not both percentages simultaneously in the same tax period.

However, a recent decision by a Dutch Court of Appeal supports the view that both percentages can be used simultaneously to reclaim VAT in the same tax period. Furthermore, the Dutch tax authorities have in the past approved such method. There is, therefore, no strong basis for their argument and it could now present an opportunity for financial services businesses who do not currently apply such a method. These financial institutions should check the VAT recovery (pro rata) method which has been applied in the last five years, as there may be an opportunity to improve VAT recovery.

Other items in this edition

  • Germany - AG’s opinion regarding the VAT treatment of the sale of reinsurance contracts
  • Hungary - Increase of standard VAT rate from 20% to 25%
  • Slovakia - Introduction of VAT grouping 1 April 2009
  • Switzerland - Amendments to the VAT law and proposed increase in VAT rates
  • United Kingdom -  Questions referred to ECJ on scope of 'abuse' principle / UK High Court upholds the VAT exemption for internet insurance distribution / Compound interest due on VAT claims involving breach of EC law

Source: Arnhem Court of Appeal, 3 March 2009, no. 07/00372.