14 October 2003

Camilo Schutte

In a judgment of Friday 6 June 2003, the Dutch Supreme Court has dealt with the question that had been open in The Netherlands for a long time: are cable networks real property or movable goods? This article examines the consequences of the answer given by the Dutch Supreme Court, and gives a comparison with the position in the UK.

With respect to the cable network in that case, the Supreme Court's answer is clear:such a cable network will qualify as real property (onroerende zaken). The Supreme Court's ruling makes clear that a cable network will be real property if, in fact, it is a work that, given the intention of the builder of the cable network or the one giving the instructions to build the network, is durably connected to the ground wherein it is located and that it is publicly visible.

In order to determine the effect of the decision in relation to different cable networks, circumstances such as the construction modalities and the contracts pertaining to the construction and/or the sale of the network should be taken into consideration. Furthermore, not so surprisingly, the Supreme Court observed that the ownership of the cable network belongs to the one who can be qualified as the provider of the network. This is based on Article 5.6. of the Dutch Telecommunications Act (formerly Article 36 of the Dutch Act on Telecommunication Facilities). This Article 5.6 reads that the installation of a cable network by a provider of a public telecommunications network or broadcasting network does not change the ownership of that cable network.

Furthermore, the Supreme Court has observed that transfer of cables can be realised by notifying the registration numbers of the land plots where the cables are located.

Is your network legally your network?

The possible consequences of the Supreme Court ruling can be described as follows:

  • Transfer of a (telecommunications) cable network, also in the past, will only be effective if the Dutch requirements for the transfer of real property have been complied with. Requirements for such transfer include a deed of a civil notary (notaris) and registration in the land register (kadaster).
  • Attaching or mortgaging cable networks or using cable networks as a collateral will only be valid, if the Dutch requirements with regard to real property have been fulfilled.
  • There are certain possibilities to impose and register special legal burdens with regard to a cable network.
  • Transfer of (the economic ownership of) a (telecommunications) cable network, also in the past, will be subject to 6% real estate transfer tax (overdrachtsbelasting). Also the VAT rules for real property must be applied, excluding leases with VAT to VAT-exempt parties.
  • Municipality real estate tax may become due on cable networks.

The main question at this stage is who owns the cables?

  • Do you actually have the ownership, collaterals or other rights (indefeasible rights of use (IRU), rights of way, etc.) with regard to cable networks?
  • If yes, have these rights been properly registered with the land register?
  • If no, what possibilities do you have to enforce your claims? This may be especially important if the party against whom claims must be enforced has become or is becoming insolvent.

In order to be able to answer these questions, both all related documentation and the particulars of the physical construction of the network will have to be assessed.

UK position – property aspects

Traditionally cables have been regarded as part of the ground where they have been laid. This is based on the old legal maxim “quiquid plantatur solo solo cedit” (whatever is placed in the ground becomes part of the ground).

However, there has always been a two-stage test to determine whether an item has become part of the land where it is situated. First one must look at the degree of annexation to the land and then at the purpose of annexation. Over the years the relative importance given to each of these tests has changed and nowadays more importance is given to the second of these tests – the purpose of the annexation. It should be noted that this is an area of law which is constantly developing and every case is considered on its own merits.

One must, therefore, ask whether cabling is to improve the amenity of the land where it has been laid or simply for its own better use. In the case of cable networks it would appear that the cable is not there to improve the land.

Furthermore, in modern times, cable networks have been constructed by the installation of ducting through which cables are run and are not themselves in any way actually annexed to the ground (although it may be arguable that the ducting through which the cables run is).

Although there is no recent case law specifically on the point, it appears that there are good arguments to say that cabling itself, which forms part of a national network, should nowadays be treated as a chattel. As for the ducting through which cables run, this is more likely to be seen to form part of the land although, again, it is not possible to come to any firm conclusion.

Having said that, although the strict legal analysis regarding the status of the cabling itself may be unclear, the authorities clearly treat networks as real property in that they are deemed to be subject to business rates (which typically only applies to property holdings).

The question of whether such systems form part of the land through which they run is important as regards ownership. Where an item is annexed so that it becomes part of land then it becomes the property of the landowner.

The Telecommunications Code (soon to be renamed as the Electronic Communications Code) deals with this question (insofar as it relates to apparatus installed in accordance with the Code) by stating that “the ownership of any property shall not be affected by the fact that it is installed on or under or affixed to any land by any person in exercise of a right conferred by or in accordance with this Code”. However, the drafting is not as clear as it might be and leaves the wording open to interpretation.

Rights to run cable networks over private property are dealt with by the grant of wayleaves and easements in the UK. These are what one would term “property rights”.

A wayleave is a personal right granted by the owner or occupier of land to the cable operator to install its equipment on the relevant land. As this is dealt with by way of a personal right it is not currently registerable.

Where the operator has a PTO licence with Telecommunications Code powers then the operator is protected from a change in ownership of the land by way of the provisions of the Code, which states, broadly speaking, that such rights will bind future owners of the land.

The Code also states that rights granted in accordance with its terms will not be registerable so this is not an issue with wayleaves.

(Readers should note that with the advent of the new Communications Act “Code Powers” will be available more widely than simply to PTO licensed operators so the provisions mentioned above will become more widely applicable).

Easements are also used when it can be shown that there is a particular piece of land which is to benefit from the rights. (In the case of cable networks it is difficult in many instances to show this). Where easements are granted they should, if possible, be registered (particularly once the new Land Registration Act comes into effect in October 2003),.

Tax issues

In addition to the questions of legal ownership of telecoms cables, there can be serious tax consequences relating to real estate transfer tax (RETT) and municipality tax in The Netherlands, which below we compare with stamp duty and business rates in the UK. The Dutch decision also has a bearing on value added tax (VAT), which is common to both countries.

1. Real estate transfer tax – The Netherlands

According to Dutch legislation, the tax authorities are allowed to assess 6% RETT on economic ownership of real estate, now including cable networks, on transactions up to 12 years ago. Since this is based on legislation being applicable as of March 31, 1995, this means that all transfers of cable networks since that date are in principle subject to RETT. This may include companies whose main assets consist of cable networks. A seller of cable networks, by lack of a notarial deed, may be held liable by the tax authorities for payment of 6% transfer tax due by the buyer. Exemptions may apply. Although formally to be requested within one month, it would be reasonable to claim these now that it is clear that after all tax was due. If the network will now be transferred as real property, one will be subject to 6% transfer tax on the value, which may be reduced with transfer tax due on the earlier economic acquisition. So generally double taxation is avoided.

Looking at the potentially huge negative financial impact for the Dutch telecom industry, one might hope that Dutch government will rule that transactions in the past will not be subject to RETT, or alternatively change the law such that cable networks will be considered movable property.

Stamp duty – UK

As noted above, a similar debate goes on in the UK as to whether cables are real property or not. However stamp duty is applicable to transfers under documents, rather than in particular relation to the subject matter of the contract. A new stamp duty regime is expected to come into effect in the UK on 1 December 2003, which changes the nature of the duty into a transfer tax in relation to interests in land.

Stamp duty is charged on documents of transfer. The registration of an interest in land must be evidenced by a stamped transfer document before it will be recorded in the land register. Where easements supporting an interest in a telecoms cable are registered (on creation or transfer) stamping will be required.

Therefore the question of whether stamp duty applies to the transfer of a telecoms cable relates more to the way in which it is transferred then the nature of the subject matter. However as a transfer document cannot be enforced in law without being stamped it will normally be subject to stamp duty. Where stamp duty does apply it is charged at rates between 1% and 4%, with transactions for consideration in excess of £500,000 being charged at 4%. Transfers for consideration of less than £60,000 are not charged to the duty if they are appropriately certificated. Share sales are charged at 0.5% of the consideration regardless of the total value of the consideration. For the purposes of calculating the appropriate rate of duty related transactions are aggregated.

2. VAT – The Netherlands

Companies need to review their VAT position. Especially transactions with parties who are not or have not been entitled to 90% VAT deduction need attention because such buyers/users are not allowed to transfer or rent real estate with VAT. From a VAT perspective, it can be argued that the end users of cable facilities do not rent the cables itself but pay for a certain service through the network. This might result in the end users remaining to be charged with VAT and that the specific VAT-real estate rules may, to a certain extent, be avoided in the telecoms industry.

VAT on transactions may need to be corrected if contracts indicate that transfer as real property should occur because of this decision.

VAT - UK position

Again, it is less common for a cable in itself to be transferred by itself. It is common that so much of a business is transferred that the sale is brought within the ‘transfer of a going concern’ rules such that it is not a supply for VAT purposes. The sale of an IRU in a telecoms cable will also be a transfer of a going concern provided that enough of the business is transferred that it could be a self-contained business. If this is not the case the transfer is a supply subject to VAT as a supply of services. As an IRU is not a property right there can be no exemption under Schedule 9 of VATA 1994. However the supply of a new work of civil engineering will fall under the exemption. Again, this area is complicated by the different ways in which such networks are built and sold.

3. Municipality tax – The Netherlands

Cable networks may now become subject to municipality taxes. Formally this tax can be levied as of 5 years ago. The Dutch Telecommunications Act may prohibit the levy of municipality tax.

Business rates - UK

Telecoms networks are regarded for the purposes of UK business rates as being ‘rateable hereditaments’. The general position is that this tax applies to both cables themselves and IRUs. Ownership of the cable is not definitive, but rather occupation of the hereditament determines who is subject to the tax.

Further Questions

Please note that the information contained in this briefing is particularly time sensitive and you should check the current position of the relevant law and practice when considering your position in relation to these areas.

If you have any further queries or need assistance, please contact us by telephone +31 (0)70 353 8800 in the Hague, or +44 (0)20 7415 6000 in London or by email:

For general information:

The Netherlands

Marjolein Geus

Jeroen van der Lee

Camilo Schutte

The UK

Andrew Stobbart

For specific tax related issues:

The Netherlands

Pieter Camps

For information from the civil notary

Piet de Quay

Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.