NSS k vyloučení prodeje pozemků z výpočtu krátícího koeficientu DPH

SAC on the exclusion of land sales from the calculation of the VAT pro-rata

The Supreme Administrative Court ("SAC") in a new judgment 5 Afs 335/2021 dealt with the possibility to exclude the sale of land from the calculation of the VAT pro-rata (deductible proportion) under Section 76(4)(a) of the VAT Act. The company that sold the land considered it as a capital asset and accounted for it as such. To the contrary, the tax administrator considered the land as mere goods (short-term asset), as the business of the company was property development and it purchased the land with the aim of subsequent sale. The tax authorities therefore refused to exclude this sale from the VAT pro-rata, which led to a significant amount of VAT deduction being denied.

The SAC agreed with the decision of the tax administrator and the Municipal Court in Prague. The core business activity of the company, as a developer, was correctly assessed. The company purchased the land with the intention of dividing it into individual building plots and then selling it. The main difference between capital assets and goods is the expected future use of the land. Where a taxable person carries out the activity of purchasing land with a view to its subsequent sale, such a land should generally be regarded as goods for VAT purposes. In order to treat the land as capital asset, the taxable person would have to prove that it purchased the land for his own use.

According to the SAC, this conclusion is not affected by the "minor" use by the taxpayer, e.g. the fact that part of the land was leased for agricultural purposes for a certain period of time, or was used for the placement of advertising, storage of materials or the granting of easements, etc., as the land was not acquired for this purpose.

If you have any questions, please do not hesitate to contact the authors of this article or the members of the EY team with whom you usually work.

Authors:

Jevgenija Bajzíková

Štěpán Kvíz