City letting art studios for consideration loses VAT refund on costs

A municipality that lets studios for consideration cannot recover the value added tax on the related acquisitions through the municipal refund procedureVero, even where the rents are capped and cover only a fraction of the costs. In advance ruling KVL:032/2026, the Central Tax Board (Keskusverolautakunta) treated a city art-building studio letting as real-estate letting within the scope of VATVero and, as a result, refused the refund under section 130(1) of the Arvonlisäverolaki for purchases attributable to that lettingVero.

The arrangement concerned a new building the X city planned for arts activities, containing 55 separate studios. The studios were to be let on long-term leases to arts operators, with letting handled by an Operator under a usage-right agreement for the building's premises. The city itself was to set the rent charged for the studios at no more than 10 euro per square metre, and that rent was to be split between the city and the Operator so that the city kept a 4.5 per cent share. The revenues from the new building were estimated to cover about 10 per cent of the costs of providing the art-activity premises.

The Board held that the studio letting took place for considerationVero. The letting activity therefore fell within the scope of VAT as letting activity, and specifically constituted real-estate letting within the meaning of section 130(2) of the ArvonlisäverolakiVero. Because the purchases were made for such letting activity, the city had no right to the section 130(1) refund for themVero. The low rent level, the revenue split and the 10 per cent cost coverage did not change that characterisation.

For municipal finance and property teams the line is practical: where a letting is for consideration, the related input tax follows the letting route in section 130(2), not the municipal refund route in section 130(1)Vero, and the acquisition costs must be planned on that basis. The ruling applies for the period 23 September 2026 to 31 December 2027Vero and is marked as not yet legally binding.

The ruling was issued under Arvonlisäverolaki sections 1(1)(1), 6(1), 27(1), 102(1)(1), 130(1) and (2) and 190a, the VAT Directive (2006/112/EC) Article 135(1)(l), and the Court of Justice judgments in C-215/19 Veronsaajien oikeudenvalvontayksikkö (Konesalipalvelu) and C-263/15 Lajvér.