The tax authority stated that if the taxpayer splits his property into smaller plots and then sells it, he would have to pay VAT on each of the plots sold.
The division of the land, the separation of roads or the request for a decision on the conditions of construction is, according to the tax office, a structured action that indicates activity characteristic of the real estate trade. Therefore, the division of land and the subsequent sale of individual plots will be considered to be an economic activity in the form of the sale of real estate, thus adding mandatory VAT to the price of each plot.
New KIS Interpretation
The owner of the agricultural land requested an individual interpretation. He intended to convert his ground to 16 smaller construction plots and then sell them. Some plots were built with residential and economic buildings.
It should be recalled that the applicant was engaged in a medical practice business at the time of the planned sale and was not registered as a VAT taxable person.
The landowner wanted to make sure that the tax authority shared his view that the sale of individual plots, including plots built up by residential and economic buildings, would not be subject to VAT. However, it appeared that the Director of National Tax Information did not divide the applicant's position.
Director KIS stressed that on the basis of the definition contained in Article 2(6) Act of 11 March 2004.on tax on goods and services (Journal of Laws of 2004, item 535) – the sale of land is treated as the operation of the supply of goods referred to in Article 5(1)(1) This bill.
Moreover, the ground meets the definition of goods Article 2(6) that law, and its sale constitutes the supply of the goods referred to in Article 7(1). Therefore, the division of the land, the separation of roads or the request for a decision on the construction conditions will be an organized action to trade goods in the form of land.
According to the Director of KIS, VAT will have to be deducted from this activity.
NSA's Different View
In the NSA ruling of 27 May 2014, reference no.
I FSK 774/13, This view was very different, since, according to the court, ‘the disposal of even a dozen plots resulting from the division of agricultural land and after obtaining the conditions for their construction, does not constitute per se a taxable activity subject to VAT, since there are no indications that the seller is so active in the disposal of land which would be comparable to those of operators engaged in such a turnover (lack of professional conditions – the permanent and organised nature of such activity), indicating that in such a case we are dealing with activities within the management of private assets which have no business characteristics within the meaning of the legislation on the taxation of goods and services.
The sale of land under the management of private assets does not mean that the seller cannot act with the intention of obtaining the highest possible price from such sales.
This is not a criterion indicating the establishment of an economic activity, as it is natural that "private" trade also seeks to achieve the most favourable terms of sale.
From another NSA ruling dated 17 April 2019 o reference no. I FSK 578/17 We can also learn that “no court can agree first instances that the complainant’s entire activities in relation to the property that he owned, i.e.: division of the property into 7 the smaller plots, the separation of the internal route, the hardening of this road, the application for a decision on the conditions of construction, proves that the applicant acts as a person active in the field of real estate trading.’ This indicates that the division of the property into smaller plots is not of a commercial nature in this case, as it was part of the normal management of private assets.
Sale of plots is an economic activity from which VAT must be removed
New position, adopted by the Director of the CIS in an individual interpretation at 19 July 2019, No 0111-KDIB3-3.4012.161.2019.2.MPU says that in this situation the structured nature of the actions is the most important.
Therefore, if the activities carried out by the entity which supplies the goods (in this case the land) can be attributed to the business characteristics, the entity will automatically become a taxable person and at the same time will be subject to tax on the goods and services.
In this interpretation, the tax authority referred to the judgments of the Court of Justice of the European Union (TEU) from 15 September 2011 related cases, i.e.
C-180/10 and C-181/10, in which the TEU indicated that ‘the activities relating to the ordinary exercise of ownership rights cannot be regarded as carrying on business on their own (...) and the number and extent of the sales transactions carried out are not decisive.(...) In contrast, where the person concerned takes active measures in the field of property trading, involving measures similar to those used by producers, traders and service providers within the meaning of Article 9(1) paragraph second VAT Directives’, i.e.
in this case, all the necessary activities will be needed to divide the property, transform the land into construction sites, and all marketing activities.
These activities will indicate that the sale of the split land will not fall within the scope of the ordinary board of directors with private panties, as the situation in which the delivery of the construction site cannot be regarded as a mere exercise of property rights.
According to the Director of KIS, the analysis of the submitted description of the case in the light of the provisions laid down by law and the judgment of the TEU leads to the conclusion that there have been circumstances in the case in question that indicate that the sale of those parcels should be considered an economic activity which will be subject to taxation on goods and services.
Despite the rulings of the NSA, from which we can learn that "the disposal of even a dozen parcels resulting from the division of agricultural land and after obtaining the conditions for their construction, does not constitute per se a commercial activity subject to VAT ...", and that "...the division of the property into 7 the smaller plots, the separation of the internal road, the hardening of that road, the application for a decision on the building conditions does not prove that the complainant acts as a person active in the field of real estate trade’ The director of KIS presented a completely different view.
In the interpretation, he pointed out that when we analyse the entire situation described, we can conclude that the planned division of the property and then the sale of individual plots will have a commercial character.
The actions taken by the applicant will not fall within the scope of the ordinary management of private assets, so according to the Director of National Tax Information the sale of the divided parcels will have to be subject to VAT.
On the basis of an individual interpretation from 19 July 2019, No 0111-KDIB3-3.4012.161.2019.2.MPU