Nuance on the concept of construction site in the case of delivery with demolition obligation
18 September 2019 - When delivering an existing building with the obligation to demolish, it was assumed until recently that the act of demolition together with the delivery of an existing building can be seen as a single performance. As a result, such situation concerns the delivery of a construction site subject to VAT. It appears that the Court of Justice has recently qualified this point if, at the time of delivery, the demolition operations have not yet commenced.
RULING
KPC Herning, a Danish project developer operating in property projects and construction work on the basis of turnkey contracts, wanted to build houses for young people together with a Danish housing corporation. For this purpose, KPC Herning purchased a site with an existing warehouse. Next, KPC Herning sold the site with the existing warehouse to a third party. In the agreements between KPC Herning and the buyer it was stipulated that KPC Herning, as a seller, undertook to design, build and deliver social housing for young people on the site on a turnkey basis. The partial demolition of the warehouse was also stipulated. On the date of delivery of the site and the warehouse, the warehouse was still fully operational.
The question that has been put to the Court of Justice, among others, is whether the delivery of the site with the existing warehouse qualifies as a VAT construction site, if the warehouse has not yet been demolished at the time of the delivery, but the parties do intend to demolish the warehouse in full or in part in order to make room for a new building.
The Court of Justice held that on the basis of the circumstances of the case, it must be assessed whether the performances, i.e. the delivery of a site with an existing warehouse together with the obligation to demolish, are regarded separately or together as one performance. The Court of Justice refers, among other things, to its judgement in the Don Bosco case. Unlike the delivery by KPC Herning, in the Don Bosco situation the demolition activities had commenced. In this case the Court of Justice concluded that the delivery of the site with the existing warehouse constitutes a separate and independent act compared to the subsequent acts, demolition or otherwise, performed by KPC Herning. As a result, at the time of the delivery of the site with the existing warehouse, there is no VAT construction site. The fact that demolition is included as a condition in the agreement does not detract from this.
IMPORTANCE IN PRACTICE
In the case of a delivery with a demolition operation, in which the parties intend to deliver a VAT construction site, it is important in the light of this judgement that the demolition operations have already commenced on the date of the delivery. This way, this judgement offers more clarity in practice. For property merchants, property investors and sellers or buyers of land, the timing of the delivery has gained importance now. The delivery of a VAT construction site will have to be assessed on a case-by-case basis, depending on the facts and circumstances.
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