This arrest covers the concept of “new building”. Supply of new building can be subject to VAT or exempted from VAT, largely depending on domestic rules, i.e. rules of the EU country where the property is situated. The entitlement to recover input VAT levied on building construction or acquisition usually impacts the profitability of any real estate project. The Court stressed that the concept of “new building” cannot be totally construed by Member States. New building includes also building that was subject to substantial modifications intended to modify the use or alter considerably the conditions of its occupation.

This case covers a financial leasing with definite transfer of ownership where the lessor may no longer claim payment of the leasing instalments because the lessor has terminated the agreement due to breach of contract by the lessee. The Court states that such a situation is covered by the concepts of ‘cancellation’ and ‘refusal’ (article 90(1) of Directive 2006/112/EC). As a consequence, the lessor may obtain a reduction of the VAT taxable basis, even if the applicable national law does not allow the taxable amount to be reduced in the case of non-payment (article 90(2) of Directive 2006/112/EC).

In the context of the letting of immovable property, the provision of electricity, heating and water and refuse collection, provided by third-party suppliers to the tenant directly using those goods and services must be regarded as being supplied by the landlord where he has reached agreements for the provision of those supplies and simply passes on the costs thereof to the tenant. The provision of water, electricity and heating as well as the refuse collection accompanying the letting of immovable property must, in principle, be considered as constituting several distinct and independent supplies which need to be assessed separately for VAT purposes, unless the elements of the transaction, including those indicating the economic reason for concluding the contract, are so closely linked that they form, objectively, a single indivisible economic supply which would be artificial to split. It is the national court that has to make the necessary assessments taking in to account all the circumstances of the letting and the accompanying supplies and, in particular, the content of the agreement itself.