Should negotiated price for purposes of property acquisition tax contain VAT or not?

20. 10. 2017

A recent ruling of the Supreme Administrative Court has changed the way the relation between the VAT and the price negotiated between the seller and the buyer and forming the basis of property acquisition tax is to be perceived. The court has heard a case in which the question whether such a price ought to include the VAT or not.

The case concerned a sale of a property, which took place in 2015 and both parties agreed in accordance with the then valid Senate’s statutory provision that the related acquisition tax would be paid by the buyer, who, while calculating the basis of the tax, did not include the VAT. The procedure, however, was later disagreed with by the financial office and a tax on the price including the VAT was additionally assessed and this viewpoint was subsequently affirmed by the Regional Court in České Budějovice. Both authorities based their reasoning on an explanatory memorandum to the above statutory provision which states that that the price should include the related VAT.

The Supreme Administrative Court decided to the contrary and ruled that the calculations had been correct; the logic underlying the decision was rooted, among others, in the fact that the VAT may not be perceived as a part of the financial income of the selling party since this part of the negotiated purchase price is transferred to the state budget, which would technically mean that the tax would be taxed. Also, such calculation would contradict the principle of tax neutrality as a VAT payer would be charged with a higher property acquisition tax solely due to the fact that they are VAT payers than the subjects which are not. Furthermore, the Supreme Administrative Court commented on the above explanatory memorandum stating that such a memorandum is not sufficient to provide a possible aim of the legislator, which needs to be clearly stipulated in the law itself; as can be seen, it was not the case in this matter.

At present, the above ruling may, as the decision of the financial administration states, be applied to property transfers performed in the period of 1 January, 2014, and 31 October, 2016, and the selling party was the transferor. This fact, then, provides an opportunity to submit an additional tax return and claim a part of the paid tax.

On 1 November, 2016, an amendment of the Senate’s statutory provisions regarding the property acquisition tax came into effect, which among others stipulates that the tax liability is to be transferred from the selling to the purchasing party. Owing to the fact that the amendment does not re-define the tax basis of the negotiated price, it can be surmised that the aforementioned ruling ought to apply to transfers made after 1 November, 2016, as well. Unfortunately, the financial administration takes the opposing stance, and, thus, another litigation appears to be the only possible way.  

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