On 23 May 2025, the Belgian Supreme Court (Cour de cassation / Hof van Cassatie) referred a preliminary question to the Court of Justice of the European Union ("CJEU") regarding the VAT deduction treatment of business transfers where the premises are not sold but instead leased to the purchaser (Cass., F.22.008.N).
This text outlines the current state of the question, the case at hand and explores the potential implications of the forthcoming ruling.
- Legal Background
Under European and Belgian VAT law, a (partial) transfer of business is treated as a "non-supply". These so-called "transfers of a going concern" ("TOGC") ensure that the purchaser continues the rights and obligations of the seller, avoiding VAT being due and, in principle, avoiding any input VAT revision on the seller's side. But what happens if the real estate is not sold with the business and instead leased to the purchaser under the VAT exemption for immovable letting?
- Relevant case law
Belgian and European Union ("EU") case law has shaped the approach taken by Belgium's VAT administration throughout the years:
- Schriever (10 November 2011, C-444/10)
The CJEU held that a transaction can still qualify as aTOGCeven if the business premises were not included in the initial transfer but leased to the transferee. The Court emphasised that the premises were essential for continuing the taxable activity, and their lease ensured the continuity of operations. Therefore, the lease was treated as part of the overall transaction and fell within the scope of the TOGC rules.
- Mailat (19 December 2018, C-17/18)
In this case, the CJEU ruled that a mere transfer of lease of essential assets, including the immovable asset and its integral components, did not qualify as a TOGC, as the transferee could not run the business independently or exercise sufficient control over the assets.
TheMailatjudgment is of more limited relevance in the present context. The CJEU only addressed whether themere leasing of all assetscould fall under thenon-supply principle for goods and concluded that it could not. The Court didnotrule on whether thenon-supply principle could apply to services.
- Belgian Supreme Court (24 November 2017, n° C.14.0578.F)
The Belgian Supreme Court held that the TOGC under Belgian VAT law only applies to the assets that are actually transferred. The Court clarified that the legal fiction of continuity does not extend to assets that are excluded from the transfer. In this case, the building was not transferred, and the lease was only established simultaneously with the transfer. Therefore, the lease of the professional part of the building could not be treated as part of the TOGC. As a result, the seller was required to revise the VAT previously deducted on the construction of the building.
- The current reference
The reference to the CJEU was initiated by the Belgian Supreme Court in a case involving the transfer of a garden shop's operational business from Company A to Company B, with the premises subsequently leased by Company A to Company B. No revision of the input VAT initially deducted on the building was applied, on the grounds that the taxable activity was deemed to have continued under the TOGC regime. The Belgian tax administration later revised the VAT initially deducted by Company A on the buildings, arguing that the leasing activity is VAT-exempt and no longer qualifies for VAT deduction.
The lower courts ruled twice in favour of the Belgian tax administration, prompting Company A to lodge an appeal before the Belgian Supreme Court. Since the issue ofinput VAT revisionrelates to the interpretation ofEU law, theBelgian Supreme Courtreferred the followingpreliminary question to the CJEU: When the premises are leased to the purchaser as part of a business transfer, and used to continue the transferred taxable activity, must the seller avoid any input VAT revision on that property?
The answer will be decisive for practice:
- If the CJEU confirms the continuity principle, the lease of the premises as part of the transfer should not trigger revision;
- If the CJEU sides with a strict approach, sellers retaining ownership of the building and leasing it back will face VAT clawbacks.
- Useful guidance
Until the CJEU delivers its judgment, taxpayers would be well advised to adopt the following precautionary measures:
- Ensure that the lease agreement clearly demonstrates that the leased premises are indispensable for the continuity of the taxable activity;
- Maintain strong, objective documentation showing that the buyer intends to continue the same business activity after the transfer;
- Assess potential exposure to input VAT revision in scenarios where the transaction could be recharacterised as a separate exempt letting; and
- Consider seeking advance confirmation from the tax authorities where significant VAT amounts are at stake.
- Conclusion
The forthcoming CJEU ruling will clarify whether leasing premises as part of a business transfer preserves VAT neutrality under EU law. Given its potential impact, this judgment will be a milestone in shaping the VAT treatment of TOGCs.
Businesses should closely monitor developments, and carefully structure transactions in the meantime.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
