On 6 June 2003, the Supreme Court of The Netherlands dealt with the question that had been open for some time in The Netherlands: “Are cable networks real property or movable goods?”.
Contrary to expectation of many people, the Supreme Court decided that the cable network in question would qualify as real property (onroerende zaken). This decision is expected to apply to the majority of Dutch cable networks, although it should be recognised that different circumstances could give rise to a different conclusion.
The decision has caused a shock wave within the Dutch communications sector. Prior to the decision, cable networks had almost universally been considered and treated for tax and contractual purposes as movable goods. A sector-wide review of existing contracts and tax obligations is now in hand.
The possible consequences of the decision include the following:
To be effective under Dutch law, a transfer of a (telecommunications) cable network (whether in the past or future) must comply with Dutch requirements for the transfer of real property including a deed of a civil notary (notaris) and registration in the official land register (kadaster).
Similar conditions and registration requirements must be fulfilled in order to mortgage a cable network or use it as collateral security.
The transfer of (the economic ownership of) a (telecommunications) cable network will be subject to 6% real estate transfer tax (overdrachtsbelasting). This charge could apply retrospectively. Also the VAT rules for real property will now apply to cable networks.
Municipality real estate tax may become due on cable networks.
The compulsory registration of cable networks as real property will, in time, create legal certainty. This is to be welcomed. However, disputes are almost sure to arise in the transition period involving any number of interested parties including former owners, vendors and purchasers, trustees in bankruptcy and the State and municipal tax authorities.
As with any legal change, risk assessment is crucial; prevention is far better than cure!