The question of whether a real estate sale transaction is subject to a VAT or a civil law (PCC) tax still raises practical difficulties in the event of the need for a proper qualification of such a transaction.
According to the rules on civil law, if the transaction is taxed on goods and services, it will in principle be excluded from the PCC and therefore the taxes indicated, i.e. VAT and PCC are mutually exclusive.
PCC concerns transactions carried out outside of professional economic turnover, and VAT in principle covers transactions undertaken by traders. It is therefore necessary to analyse whether any transaction carried out by economic operators will be subject to VAT.
Comments on the relationship between VAT and PCC
The basic principle is to tax on civil law (PCC) specific civil law activities (including sales, trades) carried out outside professional economic turnover, i.e. by non-commercial persons (or for the purposes of a particular transaction not occurring within the framework of a business activity, e.g. sale of private property rather than corporate property).
On the other hand, activities carried out by economic operators are in principle subject to VAT – as a taxed or VAT-exempt operation – and consequently are not subject to tax on PCC.
These principles arise from Article 2(4) PCCU which excludes from the scope of PCC civil law activities (other than the articles of association and its amendments) if at least one of the parties for the performance of this activity is:
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- taxed on goods and services,
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- exempt from tax on goods and services.
However, the above rules do not apply in all situations to real estate transactions, as is more detailed in sub-section (e).
In other words, the absence of an obligation to pay PCC relates to real estate transactions or certain rights which are subject to VAT at the appropriate rate (23% or 8%).
Analysis of the grounds for applying VAT to real estate sales transactions
The VAT treatment of a given activity requires a cumulative fulfilment two conditions:
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the entity’s condition — the operation should be carried out by the entity to which the tax on goods and services applies, i.e. VAT taxable person within the meaning of Article 15 Act dated 11 March 2004 on tax on goods and services ( Journal of Laws of 2004, item 535, hereinafter: VATU),
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the conditions in question – the operation should fall within the scope of this VAT treatment defined under Article 5 VATU.
The need to meet both conditions is clearly indicated by the provisions Directive 2006/112 to 28 November 2006 on the common system of value added tax L 347 to 11 December 2006, (hereinafter referred to as the VAT Directive). Under Article 2 The VAT Directive provides that, inter alia, the supply of goods for consideration and the provision of services on the territory of a Member State by a taxable person acting as such are subject to VAT.
Where both conditions are met to consider that the sale of immovable property is subject to VAT, it is appropriate to Next, specify the appropriate tax rules — application of the relevant rate or exemption from VAT.
VAT entity criterion
one of the key issues it is necessary to examine whether the parties are traders within the meaning of the applicable law, i.e. Laws of Business and Civil Codes and taxable persons within the meaning of the Goods and Services Tax Act, it should be stressed that the fulfilment of the corporate condition for the recognition of whether a transaction is carried out by a VAT taxable person should, in principle, be carried out only from the point of view of the seller/provider.
According to Article 15(1) VATU taxable persons are legal persons, non-legal entities and natural persons carrying out themselves the economic activity in question Under section 2, whatever the purpose or the outcome of such activities.
But in thought Article 15(2) VATEconomic activity covers all activities of producers, traders or service providers, including natural resources and farmers, as well as the activities of professionals, also where the activity has been performed once in circumstances indicating the intention to perform operations frequently.
Economic activities also include activities involving the use of goods or intangible assets on a continuous basis for commercial purposes.
VAT rules defining the taxpayer are the implementation of EU rules
VAT Directive under Article 12(1) provides for the possibility of recognising in national legislation as a taxable person anyone who occasionally engages in transactions related to economic activity, in particular as regards the supply of certain immovable property.
That provision provides that Member States may treat as taxable persons anyone who occasionally undertakes transactions related to the activity in question under Article 9(1) paragraph second, in particular one of the following transactions:
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- delivery of the building or part of the building and the associated land, before first settlement;
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- delivery of construction site.
Consequently, it is essential for VAT to be subject to the sale of immovable property that the person (seller) acts as a VAT taxable person, i.e. making sales within the framework of an economic activity within the meaning of the provisions laid down above. It should be noted that this is not about registered economic activity as defined in the rules on freedom of activity, but about meeting the definition of economic activity within the meaning of VAT rules, which has a much broader scope.
In conclusion, it should be considered that the transaction is subject to VAT when the seller in this particular transaction acts as an entrepreneur rather than a person with his private property.
By the way of the above, it is worth pointing out that both national and EU jurisprudence have drawn up certain criteria to assess when a real estate seller acts as a VAT taxable person and when he only manages his own assets. They are mentioned, among others, in the judgment of the Court of Justice of 15 September 2011 (C-180/10 and C-181/10) and in NSA judgments: from 18 October 2011 (I FSK 1536/10) and 1 June 2017 (I FSK 451/17).
The ruling warehouses considered that the degree of activity of the seller in the sale of real estate, which proves that it involves measures similar to those used by producers, traders and service providers in the course of its business, is crucial.
Actions at each stage of the seller’s activity should be taken into account in their entirety and not only separately. In particular, those elements that combine with investment expenditure that goes beyond the standard activities of the management board of private assets are important.
However, the number and extent of the sales transactions carried out cannot be regarded as such (...). Similarly, it is not the decisive length of the period during which the transactions took place, nor the amount of revenue obtained from them.
At this point it is worth pointing out the NSA judgment of 9 April 2015, reference no.
II FSK 821/13, in which the court stated, inter alia, that a simple summary of the rules concerning the source of revenue contained under Article 10(1)(3) and point 8 with the definition of economic activity "(...) does not allow for the establishment of a universal pattern of behaviour of the taxpayer, allowing the unambiguous separation of those which should be recognised as sales related to the pursuit of non-agricultural business activities (point 3), on a regular sale (point 8).
Therefore, in any case, the proper qualification of income must be determined by the entire factual arrangements, including those relating to pre-existing and associated disposal of assets, e.g. real estate (...).
Therefore, it should be stressed that even if the economic activity of a given entrepreneur would not include the sale of real estate and the trader would carry out such a transaction in the course of its business activity for the time being first, the assessment of whether such a transaction should be subject to VAT should take into account not only the fact that it is carried out between traders and active VAT payers and not only the circumstances which occur at the time of the transaction, such as whether the property was used for business purposes, but also the circumstances which arise or may arise after the transaction, such as the possibility for the entrepreneur in future to carry out subsequent sales of the property in the course of his business, which would without doubt also prejudge that, first the transaction should be subject to VAT.
In turn, in the judgment of 22 December 2008 (I FSK 1387/07) The NSA considered that the person who sold the plot on which the residential building was built, comprising several premises and garages which were the subject of the lease, should be regarded as a VAT taxable person for sales transactions. The court found that...
the complainant was building a building on the land he purchased from seven residential and five garages built them with the intention of providing rental services for residential purposes, that is, with the intention of doing business. Indeed, it cannot be accepted that the complainant acquires assets for his own use. ...
the complainant, in particular in the light of the content of the sentence second Article 15(2) the above law as well as the sentences second Article 4 VI The Directives, as soon as the construction of premises was started, with the intention of allocating them for rental, took up business activity, thereby obtaining the status of taxpayer.
In such a situation, it had to be assumed that when selling the premises in question, the complainant did not dispose of the personal property but of the premises which were to be used for the business.
VAT criterion
According to Article 5 The Goods and Services Tax Act is subject to:
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- the provision of goods and services in the territory of the country for consideration;
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- exports of goods;
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- imports of goods into the territory of the country;
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- intra-Community acquisition of goods for remuneration within the territory of the country;
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- intra-Community supply of goods.
By delivery of the goods in question under Article 5(1)(1), is understood in accordance with Article 7 the appointed law transfers the right to dispose of goods as the owner, which follows, among others, by the transfer of ownership of goods.
But according to Article 2(6) goods and parts thereof, as well as all forms of energy shall be considered as goods in the abovementioned Act. As a result, properties meet the statutory definition of goods and their sale is treated as a paid supply of goods within the country.
This means that under the provisions of the Goods and Services Tax Act, property is always considered to be a commodity. The sale of the property is therefore a paid supply of goods subject to VAT.
Exemption and cancellation of VAT exemption
However, it should be noted that the legislature has provided for specific regulations in the wording of the Act allowing taxpayers to benefit from the tax exemption. According to Article 43(1)(10) VATU, supplies of buildings, structures or parts thereof shall be exempt from tax, except where:
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- delivery is made within the framework of first settlements or before,
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- between first settlement and delivery of buildings, structures or parts thereof have been less than 2 years;
However, the taxpayer may waive the exemption in accordance with Article 43(10) the above-mentioned law that: The taxpayer may waive the tax exemption in question Under section 1 point 10 and choose to tax the supply of buildings, structures or parts thereof, provided that the supplier and buyer of the building, structures or parts thereof:
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- are registered as active VAT payers;
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- submit, before the date of delivery of these facilities to their buyer to the head of the tax office, a consistent statement that they choose to tax the supply of the building, the building or its parts
In the margins, it is also worth pointing out that, in order to assess whether the sale of the property in question is carried out in the context of business activity, the nature and manner of the use of the property is also relevant. If the property which is the subject of the transaction covers e.g.
a construction plot built up with buildings used in the business activity of the entrepreneur, i.e. the storage hall and the office building which were on the plot at the time of its purchase were therefore not private property, which is not intended for further resale and is used for private purposes.
Author
Leszek Dutkiewicz
Partner At Russell Bedford. From 2011 related to Russell Bedford Poland. In years 2008 – 2011 worked for leading consulting companies (Ernst&Young, KPMG, BDO) providing tax advisory services. He specializes in tax and economic law, primarily in international tax law, tax proceedings, VAT and transaction prices.
Author of a publication on tax, civil and international law issues. Lecturer in tax law training. He has legal education, in 2008 graduated from the Faculty of Law and Administration of the Jagiellonian University.