Municipality of Woerden – European Court of Justice finds that a sale of a building at 10% of cost to an intermediary for 90% non-taxable use entitled the vendor to full input tax credits

If a Dutch municipality had provided two buildings constructed by it to the mostly VAT-exempt building users (e.g., schools) directly, it would have been entitled to a credit for only 10% of its construction-related VAT costs (being the percentage of use by a taxable sports facility). Instead, after a newly-formed non-profit foundation was interposed between it and the users, it sold the buildings to the foundation at 10% of its cost and reported VAT on that below-FMV selling price.

This worked, so that the municipality received 100% credit for its VAT costs. President Biltgen stated:

[I]f the supply price is lower than the cost price, the [input tax] deduction cannot be limited in proportion to the difference between the supply price and the cost price, even if the supply price is considerably lower than the cost price, unless it is purely symbolic. … The fact that that purchaser allows parts of the building…to be used without charge is of no importance… .

B.C. Sky Train is similar.

Neal Armstrong. Summary of Municipality of Woerden v. Secretary of State for Finance, Netherlands, C:2016:466 (ECJ (10^th)) under ETA s. 141.01(1.1).