Back in November 2023, the Amsterdam High Court ruled that the interest received by X BV (a notary firm) for funds in its trust account qualifies as VAT exempt turnover. According to the High Court, the interest received by X BV relates to economic activities that fall under the scope of Dutch VAT. As a result, X BV should apply a pro rata calculation which restricts its VAT recovery right.
The attorney-general of the Dutch Supreme Court concludes that X BV does not supply any services to the bank. Although the notary holds client funds in its trust account, the AG concludes that this does not constitute a supply of a service against consideration. It is necessary to refer this case to a lower court to determine the impact of these non-economic activities on the VAT recovery position of X BV.
The question is whether the Dutch Supreme Court will agree with the conclusion of the AG. If so, it will be necessary to determine whether these non-economic activities (i.e. maintaining the trust account) is for the benefit of the general economic activity of the notary (thus not affecting its VAT recovery right) or whether this is a stand-alone non-economic activity which does affect the VAT recovery right of the notary (so called pre pro rata).
The judgement from the Dutch Supreme Court could be of interest for all businesses that receive a significant interest amount on their bank account.
Key takeaway
The conclusion of the AG is a new development in the ongoing debate concerning the VAT recovery right of businesses that render incidental non-economic or VAT exempt activities. Hopefully, the Dutch Supreme Court will provide more clarity on the impact of non-economic or exempt activities on the VAT recovery right.
Reference
ECLI:NL:PHR:2024:1416, Parket bij de Hoge Raad, 23/04467
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