Sale of premises with equipment and the VAT rate

Service-Tax

Real estate trading is one of the basic branches of the economy. Virtually every entrepreneur uses real estate for business. Often, real estate is also sold with the equipment inside. As for the sale of the real estate itself, there are usually no major problems with determining the VAT rate, some doubts arise in the case of equipment components. Below we present a way to solve the problem of selling the premises together with the equipment.

The degree of binding of the equipment to the premises

Clarification of the issue of whether the sale of the premises together with the equipment is subject to the application of a uniform VAT rate, or a separate rate for the premises and a separate one for furnishings, depends on the degree of connection of the given equipment with the real estate. It is about the concept of complex benefits. First of all, it should be pointed out that each taxable activity should be treated as separate and independent. Where there is a certain set of benefits, the tax consequences should be applied to each activity. However, there are such transactions in trade where two or more activities performed by the taxpayer are so closely related that they objectively create only one, indivisible economic event, the separation of which would be artificial. Based on the case law, certain elements are distinguished that must be present in order for a given service to be considered comprehensive.

The above position was also confirmed by the Supreme Administrative Court in the judgment of 1 April 2015, I FSK 2134/13, in which it indicated that "each transaction should usually be considered as separate and independent, and a transaction consisting of a single supply should not be artificially separated from the economic point of view, so as not to deteriorate the functionality of VAT. the taxpayer provides the customer with several separate main benefits or one service, whereby one service occurs when at least two elements or at least two activities performed by the taxpayer for the customer are so closely related that they objectively constitute only one indissoluble service economic, the separation of which would be artificial ".

In the light of the above, if the equipment is permanently connected with the premises, it is necessary - in accordance with the concept of complex services - to apply a uniform VAT rate to the entire transaction. The equipment permanently related to the real estate should be understood as built-in furniture, ceiling lamps, built-in mirrors, a built-in stove, etc.

The main activity in this case is the sale of the premises. The described equipment undoubtedly constitutes one whole, in economic terms, together with the apartment, the separation of which would be artificial. The sale of such premises should be taxed at the rate applicable to the delivery of real estate. Therefore, if it is a property covered by a social housing scheme, the supply is taxed at the 8% VAT rate. We apply a 23% VAT rate to the sale of other premises.

Sale of premises with equipment - examples

Example 1.

The entrepreneur decided to sell the premises covered by the social housing program. The restaurant has built-in kitchen furniture. The sale of the entire premises along with the equipment should be taxed at the rate of 8% VAT.

The situation is completely different if the elements of equipment are not permanently and functionally associated with a given premises. In a situation where we are talking about such things as free-standing furniture, a refrigerator or a washing machine, their separation from the property will certainly not be artificial or unnatural. In this case, you can also use the provisions of the Civil Code, talking about component parts of things. Now, a constituent part of a thing is everything that cannot be disconnected from it without damaging or substantially changing the whole, or without damaging or significantly changing the disconnected object.

In the context of the presented definition, disconnecting free-standing equipment from the premises is not an activity that will damage the property or significantly change the whole. Consequently, in this case, the concept of complex performance cannot be applied. The sale of the premises with the equipment cannot be treated as one delivery of goods. In this situation, two transactions should be distinguished and the appropriate tax rates applied - one for the supply of premises, the other for the supply of equipment.

On the other hand, the provisions of the Civil Code referring to affiliation can be referred to as free-standing items. The statutory definition indicates that belongings are movable items needed to use another item (main item) in accordance with its intended purpose, if they are in an actual relationship with it corresponding to this purpose. Belonging does not lose this character by temporarily depriving it of any real connection with the main thing. There is only a functional relationship between the main thing and the thing that belongs. So there is no close physical bond that causes a thing to become part of another thing. In the relation of belonging, there are two separate subjective property rights - to the main thing and to the auxiliary. Therefore, affiliation may be the subject of spontaneous circulation, while a component part may not be the subject of a separate delivery.

We can find confirmation of the above thesis, among others in the judgment of the Supreme Administrative Court of 1 December 2010, file ref. I FSK 2067/09, in which the court stated that: "When it comes to furnishings and household appliances and audio / video devices, from the legal point of view, these are movable property that can be traded separately and the mere fact of furnishing a residential building (flat) with them cannot decide about becoming components, as they would have to be permanently connected and in such a way that it would not be possible to detach them from the main thing (apartment) without damaging or significantly changing the whole, or without damaging or significantly changing the disconnected object ".

Example 2.

The entrepreneur decided to sell the premises covered by the social housing program. The premises have household appliances and audio / video devices. The above means that the rate of 8% VAT will apply to the sale of real estate, while the taxpayer will apply the basic rate, i.e. 23% VAT, to the supply of equipment.