Tax customs & excise /

Purchase of land with a shelter or a shelter with soil? VAT considerations

In addition to the broadly discussed exemptions from Article There is still an exemption under Article 43(1)(10) and (10a) of the VAT Act. It provides that the supply of land not built on other than building land is exempt from this tax. The application of this provision raises numerous problems. It is necessary to define what construction sites are and whether the land subject to the transaction is such. If we come to the conclusion that not another problem may arise when understanding the word „undeveloped”.While in classic cases of purchase of buildings or land on which no buildings are to be built, the interpretation is not in doubt, in the case of buildings or structures of low economic significance in relation to the land itself this can be problematic (i. e. when the land itself is worth much more than a shed, a guardhouse, etc.). In accordance with the wording of Article 29(8) of the VAT Act, the land on which the buildings and structures are located is taxed in accordance with the provisions of the VAT Act. the rate applicable to the building or structure. At this point in time, the problem arises as to whether the shed of negligible value can determine the rate for land of considerable area and economic significance?

The judgments of the NSA and the TSUE take the view that the economic purpose of the transaction, i. e. what is actually being sold, is important. Such a purposeful interpretation seems to be in line with the economic reality, but it is not the case that other judges and interpretative bodies hold to the literal meaning of the provision, which means that if there is any building or any structure on the premises, then we are dealing with the sale of the structures and the need to apply Article 29 (8) of the VAT Act.

These application problems sometimes contribute to instability in transactions. Any such matter should therefore be looked at with due care and attention.

Author team leader DKP Legal
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