Eurokonformní výklad DPH u převodu bytů po rekonstrukci

Euroconform interpretation of VAT on the transfer of flats after reconstruction

The Supreme Administrative Court (SAC) has issued an interesting and potentially dangerous judgment 6 Afs 247/2021, in which it assessed from what point in time the VAT exemption period for the supply of residential units starts to run.

A company acquired a plot of land with a detached house in 2008. The company subsequently carried out renovations and demarcated residential and non-residential units. The units were registered in the land register in 2014 and the approval was issued in 2015. In 2015 and 2016, the company sold part of the units in question and part of them were contributed to the share capital of another business corporation.

The company considered that the exemption period was met because the building had been previously approved and used before the renovation and therefore did not apply VAT.

However, the tax administrator disagreed, and the Supreme Administrative Court subsequently upheld its conclusions. The latter concluded that the five-year period for VAT exemption started running again from the new approval in 2015, since the subject of the transfers were units that were created only in 2014 as a result of the building reconstruction . The court's reasoning is based on the indirect effect of European law, i.e. the obligation to interpret domestic legislation in such a way that comes as close as possible to the meaning and purpose of the EU directive.

The directive also allows Member States to tax the transfer of an older building if such a building has been converted. However, this is an optional provision (the so-called "may provision"), which was only introduced into Czech law in 2016. The information published by the General Financial Directorate (GFD) in connection with this amendment explicitly states that substantial changes (reconstruction) approved before 2016 do not affect the running of the exemption period. In this light, the assessment of VAT even for the delivery of units in 2015 appears rather strict (i.e. the court seems to have deviated from the EU law in an attempt to be as close to it as possible).

When applying VAT, we recommend always taking into account not only the domestic regulations but also the related European legislation, its interpretations and the CJEU's decision-making practice, and pointing out any inconsistencies in a timely manner. The above-mentioned judgment demonstrates that this is necessary even in situations which at first sight appear to be resolved by the interpretations of the Czech tax administration.

If you have any questions, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

David Kužela

Jevgenija Bajzíková