On April 15, 2010, after several years of litigation, it appears that the hatchet can finally be buried in the matter of the Dutch VAT adjustment for staff benefits (the 1968 VAT Deduction Exclusion Decree; “DED”). The European Court of Justice (“ECJ”) decided that it had no objection to the current DED, which excludes the deduction of VAT under certain conditions, if it concerns the following costs:
· Offering means of private conveyance (for example, a company car
· The provision of food and drink;
· The provision of housing;
· The provision of sport and leisure facilities to members of staff; or
· The provision of promotional and other gifts to those who have no right to deduct VAT.
We note here that the Dutch Supreme Court has already decided that the DED was not binding in cases where the deduction of VAT is excluded for salary in kind (to the extent that this is not included in the above-mentioned categories), and for goods and services that are used for other personal purposes by staff members.
The ECJ also does not consider it to be an issue if only part of the input VAT is adjusted in the DED if goods or services are only partially used for business purposes. Finally, the ECJ stated that there were no objections to an amendment to the DED, as long as the relevant businesses are not worse off in practice as a result. This refers to the threshold amount being raised from DFL 250 to DFL 500, which is the current threshold amount (EUR 227).
The ECJ’s decision means that the DED remains almost completely intact. This does not have to put businesses at a disadvantage, because the European alternative to the DED could turn out to be less favorable. This is because the provision of staff benefits is equated to the provision of a service to a third party in exchange for a fee. The business then owes VAT on this “internal service,” but has the right to deduct the VAT paid in relation to the expenses incurred. As the European rules do not specify a threshold amount, they are more complicated and potentially more expensive.