Relocation costs

VAT on relocation costs

Dutch Supreme Court rules: input-VAT relocation costs employees might be deductible


A multinational company employer who moves foreign employees of the group to the Netherlands and pays the relocation costs might in some cases be able to deduct the input-VAT on these costs even though a private element to the relocation cannot be denied.

In the case at hand the taxpayer is a Dutch fiscal unity that is part of a multinational company and runs a chemical plant in the Netherlands. The company regularly relocates foreign employees to the plant in the Netherlands. These employees are transferred because of their specific skills and expertise. The employees are entitled to compensation from their employer to cover relocation costs.

The employer contracted the movers and paid the bills. The invoices concerned were addressed and sent to the employer directly. 

In dispute was whether or not the input-VAT on these invoices was deductible in the VAT return of the employer. 

Tax Court The Hague ruled that the services rendered by the movers were supplied to the employees and not the employer. The Dutch Supreme Court annuls this judgement and rules that in this case the services were supplied to the employer. Apparently there was no legal relationship between the movers and the employees. The employer contracted the movers, the invoices were in his name and were paid by him. Therefore taxable services were rendered to the employer and not to the employees.

Tax Court The Hague had also ruled that the input-VAT could not be reclaimed because the supplied services were partly private employee costs. The Court did not motivate it's judgement and that is why the Supreme Court refers the case to the Tax Court Amsterdam. The Supreme Court considered that sometimes there is a possibility that the costs are primarily made in the companies interest and that the employees interest is of minor importance. If that is the case deduction of the input-VAT should not be limited.

Source: Dutch Supreme Court, 8 October 2004, no. 38462