Promo 54 case: Belgian VAT rules on converted buildings survive legal challenge

The Court of Justice issued its ruling in the highly anticipated Promo 54 case (C-239/22) on March 9, 2023. Despite concerns that the Belgian rules on "renovation" would be invalidated, the Court did not take that step.

Nevertheless, the positions taken by tax authorities regarding the treatment of old buildings that undergo renovations remain problematic.

The Belgian VAT rules on converted buildings are complex and rely on several criteria to determine whether a building can be considered "new" and sold subject to VAT. Administrative doctrine holds that a building must undergo radical changes in its essential elements, nature, and structure, and where appropriate, its purpose, to be regarded as new. Additionally, the 60% rule is often applied, which requires that the value of the works exceeds 60% of the sale value of the building (without land) after the works.

Article 135(1)(j) of the VAT Directive provides an exemption from VAT for the supply of a building. This article refers to Article 12(1)(a) of the VAT Directive, which states that the supply of a building before its first use is subject to VAT. Additionally, this article allows Member States to establish conditions for the application of the criterion referred to in paragraph 1(a) to the conversion of buildings, as well as the concept of 'ancillary land'. Therefore, Member States can introduce criteria to classify a renovated building as a new building.

Case Promo 54

The Promo 54 case involves a collaboration between two companies, A and B, that converted an old school building into apartments and office space. Initially, A, the owner of the land and old structures, sold the building and land to private investors without VAT. Subsequently, B entered into a building contract with these buyers to renovate the building at 6% VAT. The tax authorities view this type of arrangement unfavorably and consider it as "abuse," as stated in Administrative Decision No. ET 120.125 of May 13, 2014. Although the case facts date from before this decision, it can be assumed that the tax authorities also invoke the notion of abuse here.

A and B argue that the converted building cannot be subject to VAT. They contend that an old building in use for some time cannot be considered new in Belgium since the VAT Code does not specify that a converted old building can be subject to first occupation, as stated in Article 12, paragraph 2, 2nd subparagraph of the VAT Directive. Therefore, strictly speaking, a converted old building can never be regarded as "new" for VAT purposes.

They argue that the second subparagraph of Article 12(2) does not have direct effect and cannot be applied in Belgium since Article 12 of the VAT Directive is a "may" provision. This means that Member States are not required to implement this provision in their national legislation. A and B believe that the application of this provision in administrative doctrine is insufficient. In other words, only new buildings that have not been used before could fall within the scope of VAT in Belgian law.

Preliminary question

The Court of Justice was tasked with the following question after the case was referred to it via the Court of Cassation:
‘Must Article 12(1) and (2) and Article 135(1)(j) of Directive 2006/112 be interpreted as meaning that, where the Member State has not defined the detailed rules applying the criterion of first occupation to converted immovable property, the supply, after conversion, of a building in respect of which, before conversion, there had been first occupation within the meaning of Article 12(1)(a) or [the third subparagraph of] Article 12(2) of [Directive 2006/112] remains exempt from [VAT]?’

In simpler terms, the question was whether converted buildings in Belgium can be subject to VAT, or if a VAT exemption applies because Belgium has not established criteria for the "first use" of renovated buildings in its laws.


The Court's ruling begins by stating that old buildings are generally not subject to VAT, while new buildings are. The ratio legis of these rules must be sought in the fact that the sale of an old building generates hardly any added value. Member States are allowed to determine the conditions for applying the criterion of "first occupation" for converted buildings under the second subparagraph of Article 12(2) of the VAT Directive, but they cannot change the concept to undermine the VAT exemption's useful effect.

If one assumes that VAT on a building depends on the conditions set by a Member State for applying the criterion of first occupation when converting buildings, then Member States could undermine the fundamental principles of exemptions and taxation.

The Court finds that the building in this case has undoubtedly undergone significant changes. According to previous case law of the Court, this would make it a "new" building. However, the Court leaves it to the referring court to confirm this assessment.


The Court of Justice's decision is of importance for the real estate sector, as it resolves the uncertainty whether a refurbished building can become “new” for VAT purposes. The Court resolved this issue by stating that if the basic conditions outlined in previous case law are met, a conversion should result in a new building in all EU Member States.

However, the Court did not provide any further details on the specific criteria for determining when a building is considered "new" as this was not the central issue in the case. In practice, there apears to be a lot of ambiguity and controversy in this area.

In Belgium, an ‘alternative’ (quantitative) criterion can also used to assess that a conversion leads to a new building, i.e. the so-called "60% rule." This rule considers a building to become “new” if the cost of the material works is at least 60% of the sales value of the building (without land) after the conversion. Based on previous case law, this rule seems to have to be included in national legislation. This explains why this last rule is considered “optional” by the VAT authorities. It cannot be invoked against the taxpayer. After all, there is a European definition of renovation leading to new construction.

That fact in itself raises questions about the position of the tax authorities on (old) buildings that are sold and then renovated. If the sale and the renovation are considered indivisible, the tax authorities consider the entire transaction as a “sale on plan” – and therefore a new building.

Based on the judgment of the Court of Justice in, among other things, the Promo 54 case, this seems to be a bridge too far. Or how an at first sight favorable decision for the tax authorities can also have other consequences.