News article

Tax authorities proven right: VAT adjustment on exempt lease to business transferee

An operator of a garden center transfers his business and leases the building to the buyer. The transfer took place before 2019, when optional VAT-taxable leasing was not yet available. Because the transferor leases the building under a VAT exemption, the tax authorities argue that he must adjust his VAT deduction on that building. Incorrectly so, according to the transferor, because the transferee continues to use the building without interruption for VAT-taxable activities following the transfer of the business under Article 11 of the VAT Code.

The General Court of the European Union agrees with the tax authorities. Because the building is leased with a VAT exemption after the transfer of the business, and is therefore used from that point onward for a transaction that does not give a right to deduct, the VAT deducted on that building for the remaining years of the adjustment period must be repaid.

The fact that this exempt lease forms part of a business transfer under Article 11 of the VAT Code does not change this conclusion. The lease itself is not part of the business transfer; it is a new right created in connection with that transfer.

With its judgment, the General Court brings an end to a decades-long discussion in Belgian VAT practice. However, this does not mean that a VAT adjustment must always take place when the commercial property is not part of the transfer of a totality of assets or a branch of activity. Alternative options remain available, even when an optional VAT lease is not possible.

General Court of the EU, T-397/25, DECO, September 2, 2026