Incidental sales

A Danish building business carried out projects for third parties. It also constructed buildings on its own account; this latter activity was subject to VAT under Danish law but when the buildings were sold the sales were exempt from VAT.

When determining the amount of input tax to be deducted the business sought to exclude the turnover from the sale of such buildings on the basis that they should be treated as ‘incidental real estate … transactions’ in the meaning of article 19(2) of the Sixth Directive.

The Danish tax authority rejected the claim and the matter was referred to the European Court of Justice.

The court ruled that a sale of a property by a business could not be described as ‘incidental’ where the transaction formed a real part of the trade.

Furthermore fiscal neutrality could not preclude a building business from being unable to...