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Dear readers,

We want to inform you about a judgment of the Supreme Administrative Court (the “SAC”; 5 Afs 335/2021) that dealt with the possibility to exclude the sale of land in calculating the decreasing coefficient pursuant to Section 76 (4) (a) of the VAT Act.

What Was the Judgment About?

In 2015 a corporation sold pieces of land that were allegedly used by the corporation for the purpose of its economic operation; as a result, the land was considered (and recognised as) fixed assets. When selling the land (exempt from tax), the corporation applied an exemption pursuant to Section 76 (4) (a) of the VAT Act and did not include the land’s sale in the calculation of the decreasing coefficient.

The tax administrator disapproved the above-described procedure and arrived at a conclusion that the land constituted goods rather than fixed assets. Explaining this conclusion, the tax administrator stated that the corporation’s major economic operation involved development activities, i.e. the corporation purchased the land with the view of subsequent sale. As a consequence, the tax administrator rejected the land’s sale’s exclusion from the decreasing coefficient and assessed a significant additional amount of VAT.

Decision of the Municipal Court and the Supreme Administrative Court

The Municipal Court confirmed the tax administrator’s opinion as well as the obligation to pay the tax. The SAC agreed with the Municipal Court’s reasons and dismissed the cassation appeal.

Explaining the dismissal, the SAC stated that the corporation purchased the land with the intention to transform it into building plots and to subsequently sell them. The Supreme Administrative Court states that the major difference between fixed assets and goods is the anticipated (and later implemented) method of the future use of the land, and the land’s sale cannot involve the payer’s economic operation and to be a component used in such operation at the same time.

In the opinion of the Supreme Administrative Court, the fact that part of the pieces of land was rented out for agricultural purposes, and/or was used for a billboard, to store material or to provide easement for a certain period of time cannot affect this conclusion, because the land was not acquired for such purposes.

Please feel free to contact us with any questions.

Lenka Kolmanová
kolmanova@edmutilitas.cz