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Dear Readers,

We want to inform you about Judgment of the Supreme Administrative Court (the “SAC”) Reg. No. 10 Afs 206/2023 – 44 dated 29 August 2024. In that judgment, the SAC dealt again with the definition of a construction plot for the VAT purposes. This time, the case involved sale of land between a company and the sole Statutory Executive and owner. In the company’s view, the land’s sale was exempt from VAT, while the tax administrator arrived at an opposite conclusion and assessed additional tax to the company. The SAC agreed with the opinion of the tax administrator who correctly considered the land a construction plot.

What Was the Judgment About?

The plaintiff sold the land to the Statutory Executive without paying VAT on the concerned supply because it considered the land’s sale exempt pursuant to Section 56 of the VAT Act. This provision implies that a land’s sale is VAT exempt, unless the land operates as a whole with a structure tightly connected with the ground and, at the same time, the land is a construction plot. Construction plot pursuant to Section 56 (2) of the VAT Act (simply put) is a piece of land, on which a structure tightly connected with the ground is to be or could be erected (the land is / was a subject matter of construction work / administrative acts).

As the plaintiff did not identify any particular construction work or administrative act issued for the purpose of constructing a structure tightly connected with the ground as of the sale’s moment, the plaintiff did not consider the land a construction plot and, as a result, saw the transaction as VAT exempt. Hence, the land did not meet the construction plot’s definition pursuant to the Act on Value Added Tax (the “VAT Act”) in the plaintiff’s view and, as a consequence, it considered the transaction VAT exempt.

The Tax Office assessed an additional VAT to the plaintiff with an explanation that the sale involved supplying a construction plot and the supply therefore could not be exempt from VAT. For tax authorities, a municipal zoning plan was of key importance. Under that plan, the land was located in a residential area, and, as a result, they considered the land suitable for construction. Moreover, construction of new buildings and installation of utilities was in progress on the land at the time of the sale. The buyer also made acts needed to obtain a building permit as part of an expert opinion. The building permit was eventually granted and a family house was built on the land.

The SAC’s Statement

The SAC state (referring to Judgment No. 9 Afs 253/2018‑33) that the provision of Section 56 (2) of the VAT Act has to be interpreted in compliance with the text of Council Directive 2006/112/EC. This means that a supply of a piece of land, which is not built-up and is not intended for construction purposes, can be exempt from VAT. Hence, the member states’ law has to contain a clear definition of the construction plot, which will also cover non-built-up pieces of land, on which a structure is to be erected in the future (i.e. they are intended to be built-up).

In addition to that, the SAC highlight that any and all other facts have to be taken into account in considering a supply’s taxability, including contracting parties’ intention concerning the particular supply, even if they only occur after the taxable supply’s date. The SAC agreed with the administrative authorities’ assertions regarding irrelevance of a land’s identification as arable land in the Real Estate Register at the time of its sale. The land was considered a construction plot by the buyer during the expert opinion’s preparation, and, as a consequence, implementation of acts aimed at obtaining the building permit supported the anticipated nature of the transaction.

The SAC also confirmed that the municipality zoning plan could be considered an administrative act pursuant to Section 56 of the VAT Act, and stated that it was not necessary to set forth conditions for a particular structure’s execution. As the land was intended to be built-up with a structure tightly connected with the ground based on the municipal zoning plan (and, as a result, it was possible to perform construction work thereon), the land involved a construction plot pursuant to Section 56 (2) (a) (1) of the VAT Act.

Please feel free to contact us, if you wish to have more information about the judgment. We will be happy to help you.

Stela Bartošová
bartosova@clarksonhyde.cz