The Supreme Administrative Court (SAC) dealt with a case in which a sale of land was excluded from the calculation of the reduction coefficient. The taxpayer had sold land that they considered and accounted for as fixed assets. The tax administrator, however, believed it to be inventory, as the taxpayer's main economic activity was development, and the land was acquired with the intention of its subsequent sale. The tax administrator thus refused to exclude the sale of land from the calculation of the reduction coefficient.
A taxpayer whose main economic activity was development treated the sale of land for VAT purposes as a sale of fixed assets used for their economic activity and, consequently, did not include its value in the calculation of the reduction coefficient in the VAT return. In a tax inspection, however, the tax administrator concluded that the transaction was a sale of goods and should be included in the coefficient calculation.
The taxpayer purchased the land with the intention of converting it into individual building plots and subsequently selling it. The expected future use of land is decisive for assessing whether it is a fixed asset or goods. As the taxpayer carried out development activities, the tax authority believed that for VAT purposes the land should be regarded as goods.
The taxpayer argued that they had demonstrated the active use of the land for their business activity, such as renting for agricultural purposes, placing advertisements or storing raw materials, and therefore it should be considered a fixed asset. The Supreme Administrative Court confirmed the tax administrator's approach, stating also that the use of the land for other purposes does not affect this assessment, as the taxpayer would have to prove that they had acquired the land for their own use.
The SAC thus agreed with the decision of the tax administrator and the municipal court, stating that a small-scale use is not decisive for determining whether a fixed asset or an inventory is involved. Similarly, it is not decisive how the taxpayer accounts for the land. What is crucial is the taxpayer’s actual activity. For this reason, the sale of land should be included in the calculation of the reduction coefficient.