What was happening in court?
Media industry. A case brought before the Arnhem-Leeuwarden Court of Appeal (ECLI:NL:GHARL:2019:8931) concerned a director and major shareholder who was active in the media sector via his private limited company. The company is engaged in the management, advice and guidance of artists and presenters.
Workspace let to private limited company. At a certain point, when the company no longer had office space, the decision was made to use the ground floor of the director's house for this purpose. This floor is let to the company for a period of two years. For this, the company makes a monthly payment of € 1,000 in rent to the director.
Business Use Scheme
Taxed in box 1. If you make a private asset available to your own private limited company, you will have to deal with the ‘Terbeschikkingregeling’ (Business Use Scheme). This stipulates that you must receive a business reimbursement from the company for this, which is taxed progressively in box 1.
Independent work space?
Cost deduction for the company. This is more complicated when it concerns work spaces in the private home of the director and major shareholder. These only fall under the Business Use Scheme if the costs thereof may be charged to the profit of the company. This cost deduction is only possible if this concerns an 'independent work space for the director and major shareholder.' It must have a separate entrance and separate sanitary facilities. These conditions are not met in this case, causing the ground floor to not fall under the Business Use Scheme according to the Tax and Customs Administration.
Not for the director himself. The director and major shareholder, and later the court, do not agree with the opinion of the Tax and Customs Administration. Based on legislative history, it can be deduced that the cost deduction limitation only applies if the workspace in the private residence of the director is used by the director himself ('for the benefit of the director'). If this is not the case, the independence of the space no longer plays a role and it falls under the Business Use Scheme anyway.
No private use. After investigation, the court ruled that the ground floor let to the company was indeed not in use by the director himself but by his staff and business relations. He himself lived abroad for much of the year. When he was present in the house, he was only allowed very limited use of the ground floor. The same applied to his son who still lived at home.
What is the significance in terms of tax?
Under the Business Use Scheme. The conclusion is therefore that the ground floor does indeed fall under the Business Use Scheme during the letting thereof to the company. But why is this fiscally important?
Depreciation is tax-deductible. Between the start and the end of the rental period, the property significantly drops in value. As the rented part falls under the Business Use Scheme, the shift in price of the ground floor must be taken into account at the end of the rental period. Because this was negative, this resulted in a very substantial deductible item in box 1 of almost € 90,000 for the director and major shareholder!
Tip. This is purely an administrative loss. The director retains ownership of the house; it later increases in value, untaxed.
According to the court, a private home workspace let to the company, which space is not used by the director and major shareholder himself - but for example by his business partner or secretary - falls under the Business Use Scheme, even if the work space is not independent. At the end of the rental period, a decrease in value is tax-deductible and an increase in value is taxable.