Property transfer tax and VAT as purchase price component

A recent decision by the Supreme Administrative Court, which deviates from the financial authorities’ previous practice, has substantial impact on the property transfer tax assessment base. Sellers of real property who are registered as VAT payers may now file a supplementary tax return to recover a portion of the property transfer tax which they paid.

In most cases, the assessment base for property transfer tax draws upon the agreed purchase price for the transferred real estate, which until today included (as per the explanatory memorandum for legal measure No. 340/2013 of the Senate) any and all counter-performance rendered – including value-added tax.

In a recent decision, however, the Supreme Administrative Court decided that – in those cases in which property transfer tax is paid by the seller (and in which the seller is a registered VAT payer), VAT must not be included in the assessment base when calculating the amount of property transfer tax (case No. 4 Afs 88/2017- 35). The judgment concerns a previous time period during which the parties to real estate transfers had the choice whether property transfer tax should be paid by the buyer or by the seller.

In the view of the justices, property transfer tax is a tax on assets; VAT, even though it is included in the sales price, does not form an asset item (since the seller is supposed to pay it to the state). In its judgment, the Supreme Administrative Court argues that the very purpose of property transfer tax is to levy a tax on the revenues generated on the part of the transferor by selling the property. In this sense, including VAT in the assessment base for property transfer tax is at odds with the purpose of taxation. In the view of the court, to do otherwise would also violate the principle of tax neutrality, as VAT payers would be put at a disadvantage, compared to non-payers, in a situation which is otherwise the same.

The ruling by the Supreme Administrative Court gives sellers of real estate (who are VAT payers) the opportunity to file a supplementary tax return in which they may seek a refund of a part of the property transfer tax paid. In practice, this will concern transactions with respect to which the original tax return had to be filed in August 2014 or later. The court was silent as to whether the judgment is also to be applied to buyers (who, as of 1 November 2016, are in all cases the payer of the property transfer tax). It is therefore not clear whether the new ruling has consequences for cases in which the buyer (in their capacity as VAT payer) are the tax payer.

In any case, the finance administration will only recognize the decision of the Supreme Administrative Court in those cases in which the seller acted as the payer of property transfer tax and in which the paid purchase price included VAT.

Source: Judgment 4 Afs 88/2017- 35 of the Supreme Administrative Court Press release by the Finance Administration

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