SAC: VAT not a part of immovable property acquisition tax base
The Supreme Administrative Court (SAC) in its recent judgement surprisingly diverged from the explanatory report on the Senate’s Statutory Measure on the Tax on Acquisition of Immovable Property. According to the report, the agreed-upon price for real property acquisitions means the total price, including VAT. The SAC’s judgement now opens up the possibility to file an additional tax return to reclaim part of the tax on the acquisition of immovable property.
In 2015, the municipality of Střelské Hoštice sold a plot of land by a purchase agreement with an agreed-upon purchase price including VAT. In its immovable property acquisition tax return, the municipality stated the amount excluding VAT as the tax base. The tax administrator challenged this approach and assessed additional tax based on the purchase price including VAT. This tax administrator’s approach was then also confirmed by the regional court.
According to the relevant legal regulation, the Senate’s Statutory Measure No. 340/2013 Coll., effective 1 January 2014, the subject of the tax on the acquisition of immovable property is the acquisition of an ownership right to real property for consideration. The explanatory report on the statutory measure explicitly states that the agreed-upon price means the total price, including VAT. This definition of the tax base was also taken as a basis by the tax administrator and the regional court.
The municipality, however, referred to the Act on Inheritance, Gift and Real Property Transfer Tax as the legal predecessor of the mentioned statutory measure, and to related case law. According to these, the real property transfer tax should apply solely to the financial revenue itself, not to the VAT being paid to the state budget.
The SAC sided with the taxpayer. It concluded that the VAT should not be included in the tax base of the immovable property acquisition tax. The purpose of the tax on acquisition of immovable property is to tax the financial revenue acquired as a result of a sale of a real property, and VAT cannot be deemed a part of such revenue. Moreover, including it in the tax base would mean taxing amounts that are being collected for the state. The procedure would also be contrary to the tax neutrality principle: for VAT payers, the immovable property acquisition tax would be higher than for other comparable entities that are not VAT payers.
The SAC then dealt with the explanatory report, by stating that the Senate had failed to carry out its intention to include the VAT in the tax base in a clear and undisputable manner. Furthermore, the court admitted that a change of a legal regulation does not rule out the use of case law relating to the previous legal regulation, in particular where it is analogous. The SAC also recognised the existence of two interpretations of the legal regulation and, following the principle ‘in doubt in favour of a private entity’ sided with the interpretation that VAT was not a part of the immovable property acquisition tax.
The judgement makes it possible for VAT payers to file additional tax returns for immovable property acquisition tax and claim a refund of a part of the tax paid.