Case law: VAT and real estate transfer tax base

Since 2014, the method actually used in real life is the following: if the tax base for the real estate transfer tax is the agreed price, it is understood that it is the agreed price inclusive of VAT. This method is based on the official interpretation of the financial administration which is grounded in the wording of the explanatory memorandum to the legislative measure adjusting the real estate transfer tax since 2014. The explanatory memorandum states that the agreed price means the total price inclusive of VAT.

Recently, the Supreme Administrative Court has been deciding on a case where the tax payer as the seller (subject to the real estate transfer tax) had to submit the tax return and the tax payer determined the tax base as the agreed price exclusive of VAT. The financial authority did not accept the method and assessed the tax from the agreed price inclusive of VAT. The financial authority's steps, subsequently confirmed by a Regional Court, were supported by the above-mentioned explanatory memorandum. However, the Supreme Administrative Court accepted the view and arguments of the tax payer and decided that in the given case VAT should not be included in the tax base for the purposes of the real estate transfer tax.

The Supreme Administrative Court gave the following reason for the decision (among other things): the adjustment of the tax base stated in the legislative measure differs slightly in the wording from the original legislative adjustment in the Real Estate Transfer Tax Act, but factually it does not constitute a change compared to the former determination of the tax base before 2014 when there were other judgements confirming that the tax base is the price without VAT. A mere pronouncement of the lawmaker's intention in the explanatory memorandum to the legislative measure without any further explanation that the agreed price means the total price inclusive of VAT cannot be considered a change explicitly embedded in the respective regulation.

Another argument of the Supreme Administrative Court is a contradiction to the tax neutrality principle where the unacceptable thing is that a VAT payer should be subject to a higher real estate transfer tax than other comparable subjects who are not VAT payers.

Based on the above-mentioned information, sellers who paid the real estate transfer tax from the tax base determined from the agreed price inclusive of VAT during the period from 2014 to 31 October 2016, should consider submitting a supplementary tax return. Applying the above-stated conclusions to transfers carried out after the amendment of the legislative measure effective from 1 November 2016 should be carefully analysed, because the judgement dealt with a case that was governed by the wording of the legislative measure before the amendment.