's-Hertogenbosch Court of Appeal decision of 2 August 2023 (published 19-10-2023): Margin scheme applies, even though appellant was not a regular trader

The appellant is a VAT group whose business activities consist mainly of operating bunker vessels. X purchased a motor yacht for €165,000 under the margin scheme. The invoice states that the margin scheme is applicable. The appellant included the yacht as inventory in the balance sheet. In 2014, the appellant incurred various costs for the yacht. The costs, totalling €8,140, relate to a new canopy, insurance, an annual berth, fuel, and new antifouling and sacrificial anodes. The input VAT of €1,251 was deducted by the appellant. The appellant has not bought or sold any other pleasure yachts from 2009 to the present. The yacht was not used during the period it was owned by the appellant. The appellant had bought the yacht to resell it at a profit. Due to hidden defects in the yacht, the appellant decided against it. Subsequently, the appellant sold the yacht to one of its directors and major shareholders (hereinafter: the director) for €72,500. The sales invoice states that the margin scheme is applicable.

According to the tax inspector, the purchase and sale of the yacht qualifies as an economic activity as the appellant purchased the yacht for trading purposes. According to the inspector, even for occasional economic activities, the appellant is liable for VAT because the appellant was already a taxable person for VAT.

Further, the inspector takes the position that the margin scheme does not apply to the supply of the yacht by the appellant to the director, as the appellant cannot be regarded as a reseller. The inspector argues that an entrepreneur who, like the appellant, delivers a used good incidentally is not to be considered a reseller. Additionally, the inspector deduces from the judgment of the Court of Justice of the European Union, Jyske Finans of December 8, 2005, that the resale must be part of the normal business activities before a taxpayer can be considered a reseller. Since the appellant has not bought or sold any other yachts from 2009 to the present, according to the inspector, there is no regular trading of yachts by the appellant. Moreover, at the time of purchasing the yacht, the buying and selling of yachts was not part of its normal business activities, namely the operation of bunker vessels.

As such, the inspector takes the position that VAT is due on the supply of the yacht by the appellant to its director.

The appellant on the other hand argues that there is no economic activity, so the supply of the yacht falls is not a transaction that falls within the scope of VAT. 

However, if this is incorrect, the appellant argues that the margin scheme applies. Under EU case law, there can also be a reseller if it is an incidental transaction, the appellant argues. The appellant also refers to the judgment of the District Court of The Hague of February 7, 2008.

The court considers the purchase and sale of the yacht by the appellant as an economic activity. The appellant's normal business activities consist mainly of operating bunker vessels. Through its regular activities, the appellant participates in economic transactions and is classified as a taxable person and the activity of buying and selling a yacht is not so far removed from the normal business activities of the appellant that it cannot be considered inherent to the existing business. The purchase and sale of the yacht is, in the opinion of the court, in line with the normal business activities of the appellant and fits with the expertise present in the business. Even in terms of appearances, the appellant's actual behaviors fit into the economic activities. The appellant included the yacht in the balance sheet, deducted the pre-tax on the costs incurred for the yacht, mentioned the margin scheme on the sales invoice, and recorded a book loss on the sale of the yacht in the corporate income tax return. As such, the court concludes that the supply of the yacht by the appellant to its director falls within the scope of VAT.

However, in respect of the margin scheme, the court agrees with the appellant. The court notes that the interpretation advocated by the inspector of the concept of a reseller, specifically the limitation stated in the legislative history that "an entrepreneur who incidentally supplies a used good is not to be considered a reseller" and the condition that "every entrepreneur who trades this type of goods with some regularity in his business is to be considered a reseller," are not, or at least not explicitly, found in the EU VAT Directive. The text of the VAT Directive emphasizes the intention of the resale and not so much the requirement of regularity. Furthermore, the inspector's interpretation does not fit within the purpose and scope of the margin scheme, namely to prevent the accumulation of VAT, which would result in higher prices for used goods. Such accumulation would disable trading channels and disrupt competition between taxpayers in the area of used goods (distortion of competition). Accumulation also occurs if a taxpayer incidentally supplies a used good without applying the margin scheme. This means that if an incidental purchase is in line with the normal business activities of the appellant because it is "dragged along" with the regular economic activities, as is the case here, the purpose and scope of the margin scheme dictate that this incidental resale should be subject to the margin scheme.

It is established that the appellant bought the yacht with the intention of resale and did not use it between the purchase in 2013 and the supply in 2014. Contrary to the inspector's claim, it cannot be directly inferred from the judgment of the Court of Justice of the European Union Jyske Finans of December 8, 2005, that it is required that the resale of used goods must be part of the normal business activities. This is only required - the court deduces from the Jyske Finans judgment - if a used good is used by the taxpayer itself. As such, the court concludes that the margin scheme has been correctly applied by the appellant.

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