In a judgment on June 28, 2017 (file no. 4 Afs 88/2017), the Supreme Administrative Court considered whether VAT should be included in the base for calculating real estate transfer tax.
In 2015, the municipality of Střelské Hoštice (the "Municipality") entered into a sale agreement for a set purchase price including VAT. To cover the real estate transfer tax, the Municipality filed a tax return with the tax office stating that the tax base was the purchase price excluding VAT. In response, the tax office cited Article 13 of Senate regulation no. 340/2013 Coll., on Real Estate Transfer Tax (the "Regulation"), claiming that when calculating real estate tax, the relevant price (i.e. the tax base) is the purchase price including VAT.
This approach by the tax office was confirmed by České Budějovice District Court. The Municipality, in turn, filed an appeal with the Supreme Administrative Court.
Under Art. 2 para.1 of the Regulation, real estate transfer tax applies to payments for the acquisition of real estate. In the current case, it is worth consulting the explanatory notes on Art.13 of the Regulation. These notes state that the agreed price includes any consideration that was or should be provided under the real estate acquisition contract between the parties. The transferee (buyer) or another person may provide this consideration in favour of the transferor (seller) or another person. The agreed price is therefore the total price including VAT.
In contrast, the Supreme Administrative Court held that the explanatory notes neither clarified that VAT should be included in the base for calculating real estate transfer tax nor showed how that goal would be achieved.
The Court cited a Constitutional Court judgment (File No. IV. ÚS 500/01) of April 3, 2003 which suggests that real estate transfer tax is conceived as a tax on the value of transferred real estate and the proceeds to the transferor through the sale. While this Constitutional Court judgment concerns the Act on Triple Taxation, it does cover the purpose of real estate transfer tax – that is, as a tax on the proceeds of a real estate sale.
Value-added tax that was included in the real estate purchase price cannot be seen as part of the proceeds to the transferor (seller). Including VAT in the base for applying real estate tax is therefore contrary to the goal of the tax.
The Supreme Administrative Court held that the tax office’s interpretation would also contradict the principle of fiscal neutrality since it would mean that merely because the Municipality is a VAT payer, it faces a heavier real estate tax burden than comparable entities that do not pay VAT.
In the present case, the Supreme Administrative Court was inclined to hold that based on Article 4 together with Article 13 of the Regulation, VAT should not be included in the base for calculating real estate transfer tax.
The Court found that preference should be given to the interpretation that favours private actors, i.e. the approach that supports the aim and purpose of the real estate transfer tax.
Clearly departing from the Regulation’s explanatory notes, this decision allows the VAT payer to file additional tax returns about the real estate transfer tax in order to obtain a partial refund.