Sale of real estate and tax on goods and services

The tax authorities in their position on the tax on the sale of immovable property stress that, while generally, natural persons engaged in transactions related to their private property are not taxable persons, but also in order to be able to recognise whether that is the case, any sale, transfer or donation of goods which are part of a property which is not acquired for the purpose of resale or other business activities.

The authorities also point out that the supply of immovable property will be subject to tax on goods and services only if it is carried out by an entity acting as a VAT taxable person.

Moreover, the circumstances of its performance should also have the characteristics of an economic activity which includes, in particular, according to Article 15(2) Act on 11 March 2004 on tax on goods and services 1 (Next: the VAT Act) operations involving the use of goods or intangible assets continuously for commercial purposes[2].

1. Introduction

Director of National Tax Information issued 16 October 2020 individual tax interpretation 3 whether the sale of the property will be subject to tax on goods and services as a supply of construction sites.

Authors of the application, having a marital property union, concluded 20 May 2020 the preliminary agreement on the sale of immovable property (undeveloped land, not covered by the local zoning plan), the applicant who is a party to the proceedings being an active VAT taxable person, but did not use this property in any form in the course of road transport business, while the applicant is not a VAT taxable person and does not engage in business activities.

The purchaser (a commercial law company, an active VAT taxpayer) according to this agreement was to obtain a final decision on the terms of the construction for the sold property and the decision on the permit to build on this site according to its investment plans.

The purchaser also received from the sellers a power of attorney concerning the presence before public administrations, including the receipt of decisions and provisions, as well as on activities aimed at obtaining technical conditions in connection with connection to, inter alia, the electricity and water supply networks.

Important to the core of the interpretation, applicants also concluded, on the same day, a contract for the lease of this property for an indefinite period of time (which was shortened by the annex to three months), agreeing to have it by lessee for construction purposes. The application was submitted to the tax authority three questions of an implicating nature: will they act as VAT payers when selling the property; if so, will the sale of the plot be subject to VAT as a supply of construction sites not benefiting from the exemption from this tax, and will, in the event of such taxation, be obliged to document the transaction by issuing an invoice, each on its behalf, for an amount equivalent to half the selling price?

2. Property leases as free provision of services

In the assessment of applicants, the interpretation response to three The above questions should be yes.

In their statement of reasons, they pointed out that the acquisition of income from an asset indicates the pursuit of an economic activity within the meaning of Article 15(2) the VAT Act, and the essence of the lease agreement is that it (for the rent agreed) comes to the provision of services paid (which it provides for) Article 8(1) the VAT Act by owner for lessee.

The authors of the application, indicating that they would act as VAT payers, referred, among others, to two the decisions of the CEU.

In the judgment of 4 December 1990 4 he stated that ‘the lease of a construction site together with the right to build on it and later use of the building, in return for a year's rent, is an economic activity’, and in the judgment of 26 September 1996 5 He pointed out that “the rental of tangible property...

should be classified as an economic activity within the meaning of Article 9(2) VI Directives’ 6 . According to the applicants, the use of goods is ‘by putting them into bond relations (rent, lease, leasing, etc.)’.

Applicants recalled that according to Article 37(1)(1) Act on 25 February 1964 - Family and caring code 7 consent second the spouse is required to perform a legal act leading to the disposal, charge, payment of the purchase of immovable property or perpetual use, as well as to the surrender of the immovable property for use or use, and according to Article 43(1) Both spouses have equal shares in the common assets. Therefore, the authors of the application, as co-owners of the property, should issue, each on its own behalf, an invoice for the amount corresponding to half of the selling price.

3. Real estate activities

The Director of KIS recognised the position of applicants in third the questions considered are correct.

He pointed out that it was crucial for VAT to sell a plot of land that the authors of the proposal "take active (professional) activities in real estate transactions, involving measures similar to those used by the manufacturer, trader and service provider within the meaning of Article 15(2) the VAT Act”.

The Authority shared their assessment that ‘the lease of immovable property constitutes the provision of services in consideration...

and is subject to tax on goods and services under Article 5(1)(1) the VAT Act Thus it fills in a specified under Article 15(2) the VAT Act the definition of economic activity, irrespective of whether the lease is carried on in the course of an economic activity or as a separate source of income within the meaning of the rules on personal income tax.’

According to the tax authority, applicants will therefore undertake/will undertake activities similar to those carried out by entities engaged in the professional trading of real estate (...) and in this particular situation, it cannot be considered that the supply will be a component of the personal assets concerned and the sale of the property will constitute the exercise of the right to dispose of that property.’ The Director of KIS also stated that, since on the date of the conclusion of the relevant (non-preliminary) contract, the purchaser would have a valid decision regarding the construction permit, the whole property would be a construction site and therefore its disposal would not benefit from VAT exemption according to Article 43(1)(9) the VAT Act He also stressed that each applicant should only include in its invoice the sale of the part of the property that is owned by it.

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