A Christmas gift from the taxman: VAT is not included in the assessment base for property transfer tax

Great news for everyone whose idea of a great Christmas gift is to buy a piece of real property (of the kind which is subject to VAT): they will now pay less in property transfer tax, for the Finance Administration has issued a communiqué, precisely one month before Christmas Eve, to confirm that the assessment base for property transfer tax does not include VAT. 

On 24 November 2017, the Czech Finance Administration posted a communiqué on its website in which it confirmed that, for the purposes of determining the assessment base for property transfer tax based on the price agreed between the parties, the value-added tax (VAT) on that price (if any) is not to be included, and that the Finance Office will reflect this fact by adjusting its practice (which previously has on several occasions favored the opposite view). The conspicuous timing notwithstanding, there is no need to suspect the Finance Administration of having been swayed by the spirit of Christmas. Rather, the Finance Administration is responding here to judgments handed down by the Supreme Administrative Court in summer this year (4 Afs 88/2017-35 and 7 Afs 301/2016-70, respectively), in which the latter arrived at the view that it is not permissible to include VAT in the property transfer tax base.

It is true that both above-referenced judgments concerned older cases in which the property transfer tax was paid, according to the laws in force at the time, by the transferor. The Supreme Administrative Court thus did not address cases in which (also under previous law) it was upon the parties to agree that the acquirer, instead of the transferor, should be the taxpayer. For this reason, it was not entirely clear whether the conclusions reached by the Supreme Administrative Court could also be applied under current law (effective since 1 November 2016, according to an amendment to the Senate Law on property transfer tax, it is indeed the acquirer of real property who has to pay the tax.

The Finance Administration first sought to address the situation in a press release of 5 September 2017, in which it presented the view that VAT would only be disregarded, for the purposes of determining the assessment base based upon the price agreed between the parties, in those cases in which the transferor was the payer of property transfer tax (during the period from 1 January 2014 through 31 October 2016). This restrictive approach has now been revised by the Finance Administration.

From now on, the Finance Administration will apply the findings of the Supreme Administrative Court, according to which VAT shall not be included in the agreed price for the purpose of determining the property transfer tax base, to all cases in which real property is acquired, irrespective of who the taxpayer is. Of course, this concerns only those cases in which the acquisition value is used to determine the tax base, in which the seller is a VAT payer, and in which the agreed price includes VAT. The Finance Administration will take this revised approach to all pending tax procedures. In those cases in which the proceedings have already been closed and the Finance Administration assessed tax based on the price including VAT, taxpayers may claim their rights by filing a supplementary tax return (within the assessment period).

Source: Senate Law No. 304/2013 Coll., on tax on the acquisition of real property Communiqué by the Czech Finance Administration, accessible at http://www.financnisprava.cz/cs/dane/dane/dan-z-nabyti-nemovitych-veci/informace-stanoviska-sdeleni



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