Přísný metr na investice do cizího majetku

The Supreme Administrative Court ruled on a case involving a company that included expenses for the reconstruction of a wastewater treatment plant in its tax costs. However, the plant was not owned by the company.

The company argued that the modification of the treatment plant was necessary for the construction of apartments, which was evidenced by the zoning decision. Without connecting the apartments to the treatment plant, it would not have been possible to complete and sell them. Therefore, the company paid the agreed fee to the owner of the treatment plant.

At first glance, the company’s reasoning may appear justified. However, the tax administrator assessed the expense as non-deductible, and the Supreme Administrative Court agreed.

The company was primarily unable to demonstrate the extent to which the reconstruction of the treatment plant was truly necessary for the construction of the specific apartments. The decision also hints at other irregularities, which could be related, among other things, to personnel connections with the owner of the treatment plant.

The judgment also contains several concerning considerations. It states, for example, that the reconstruction of the treatment plant is a technical improvement that can only be depreciated by its owner or tenant. The court rejects depreciation by another person simultaneously with its owner. However, such reasoning fails to reflect the nature of so-called induced investments.

It is also noteworthy that the reconstruction of a third-party wastewater treatment plant was previously accepted as rational by the EU Court of Justice for VAT purposes – albeit in a different case and under other conditions.

What practical lessons can be drawn?

In investments in third-party property, increased caution is necessary. It is essential to provide not only construction planning decisions but also other legal and economic documentation. Tax authorities and courts are often very strict in these cases.

Author:

David Kužela