Current vat policy regarding the sale of immovable property by individuals

Author:Adrian-Milutin Truichici - Luiza Neagu
Position:Associate Professor, Faculty of Law, 'Titu Maiorescu' University, Bucharest - Lawyer, Bucharest Bar, Romania
Pages:39-45
SUMMARY

From a tax law perspective, operations have a continuing feature when they can not be considered occasional operations. However, given the complexity of real estate transactions, it should be carefully considered the context in order to determine with certainty whether or not the operation is occasional.

 
CONTENT
Current VAT policy regarding the sale of immovable property by individuals 39
CURRENT VAT POLICY REGARDING THE SALE
OF IMMOVABLE PROPERTY BY INDIVIDUALS
Adrian-Milutin TRUICHICI, PhD*
Associate Professor, Faculty of Law, "Titu Maiorescu" University, Bucharest
Associate Researcher, "Acad. Andrei Rdulescu"
Institute of the Romanian Academy
Lawyer, Bucharest Bar, ROMANIA
Luiza NEAGU, PhD**
Lawyer, Bucharest Bar, ROMANIA
Abstract:
From a tax law perspective, operations have a continuing feature when they can not be
considered occasional operations. However, given the complexity of real estate transactions, it should
be carefully considered the context in order to determine with certainty whether or not the operation
is occasional.
Keywords: VAT (value added tax), taxable person, alienation of immovable property.
1. The creation of value added tax is the result of an empirical process that
began in late 1960.
The political, economic and social circumstances as well as the psychology of
the taxpayer have played an important role in shaping the legal regime of this tax.
Finally it should be noted the role played by the legal and economic doctrine in
shaping it.1
From 1 January 1970, the VAT2 has been adopted by member states of the
Common Market, aiming at eliminating cascading taxation (repeated taxation),
which is practiced by turnover tax.
In 1977 the permanent harmonization of VAT in the member countries of the
European Union has been achieved.3
* E-mail: adrian_truichici@yahoo.com.
** E-mail: cabinetavocatura@yahoo.com.
1 M.–I. Niculeasa, Summa fiscalis. Tratat de drept fiscal şi financiar public, Ediia a III-a, revizuit şi
adugit, Editura Universul Juridic, Bucureşti, 2014, p. 754.
2 Value added tax.
3 B. Terra, J. Kajus, A. Guide to the European VAT Directives: Commentary on the Value Added Tax of the
European Community. Journal of Health Politics Policy and Law no. 1/1993.
Law Review vol. II, issue 2, July-December 2015, p. 39-45
40 ADRIAN-MILUTIN TRUICHICI, LUIZA NEAGU
Added value represents the difference between the value of a good (product)
from its sale and the value of all goods and services which were purchased in
order to realize that good. At the macroeconomic level all economic value added is
gross domestic product (GDP).4
VAT is an indirect tax 5 (so not a tax imposed on property, possessions or income of a
taxpayer, but on the sale of goods or supply of services ) it is a tax on consumption
(because it is not established based on wealth-as the quality of private property , but on the
degree of its consumption) .
The VAT does not highlight the principle of equality by tax (according to
which fiscal policy in the system of taxation must bear in mind that every taxpayer
should participate in gathering funds of the companies in accordance to the
material situation), but on the contrary, the principle of equality before tax
(according to which the taxation is done the same way for all individuals or
companies irrespective of tax treatment and therefore disregarding the personal
situation of each actual contributor ).6
Operations in the scope of VAT are those which fulfill the following
conditions:
• Represent a supply of goods / provision of services for a transaction or
assimilated;
• It is considered that the place of delivery7/provision8 is in Romania;
• They are made by taxable persons; they are the result of economic activity.9
Imports of goods, intra-Community acquisitions and transactions treated as
intra-Community acquisitions fall within the application of VAT.
A taxpayer is considered stable from a VAT perspective on the business
premises10 where essential decisions are taken concerning its management and
where they exert their central functions. Also, a non-resident person is considered
to be established in Romania in terms of VAT if they have a fixed location
respectively in Romania and have sufficient technical and human resources to
perform regular deliveries of goods and rendering of taxable services.
The place of delivery of goods and provision of services (implicitly also the
place of VAT taxation) is determined according to the same rules of territoriality
laid down in Directive 112/2006 and Directive 8/2008 available at EU level11.
4 C. F. Costaş, M. Ş. Minea, Drept fiscal, Editura Universul Juridic, Bucureşti, 2015, p. 285.
5 I. Vcrel, Relaii financiare internaionale, Editura Academiei Române, Bucureşti, 1995,
p. 192-194; C. Tufan, I. Tempea, Taxa pe valoare adugat în România, Editura All Beck, Bucureşti, 1999,
p. 10; Gh. D. Bistriceanu, M. Boaja, Sistemul fiscal al României, Editura Universul Juridic, Bucureşti,
2006, p. 236; D. Dasclu, Tratat de contencios fiscal, Editura Hamangiu, Bucureşti, 2014, p. 57.
6 D.D. Saguna, D. Şova, Drept fiscal, Ediia a III-a, Editura C.H. Beck, Bucureşti, 2009, p. 186.
7 Art. 132 C. fisc.
8 Art. 133 C. fisc.
9 D.D. Şaguna, D. Şova, op. cit., p. 188-189.
10 Gh. D. Bistriceanu, M. Boaja, op. cit., p. 245.
11 http://www.ccib.ro/ro/CCIB/4/48/107/taxa+pe+valoarea+adaugata+%28tva%29.ht ml.
Current VAT policy regarding the sale of immovable property by individuals 41
2. In accordance with art. 127 par. 1 of the Romanian Tax Code (C. fisc.): "A
taxable person is any person who, in an independent manner and regardless of place , deals
with economic activities12 of the kind referred to in para. 2, whatever the purpose or result
of such activities". For the purposes of paragraph 2 of art. 127 C. fisc., and according
to methodological norms for its application "economic activities include the activities of
producers, traders and service providers."
According to pt. 3, par. I of the Methodological Norms of enforcing of Title VI
of Law no. 571/2003 on C. fisc., approved by Government Decision no. 44/2004, as
amended and supplemented, for the operations other than the sale of goods used
for private purposes, the individual becomes taxable if the activities have continuity
and are carried on for revenue, according to art. 127 par. 2 C. fisc. Further, based on
the above legal provisions, we analyze situations where individuals who alienated
immovable property are or are not treated as taxable in terms of VAT. According
to art. 141 para. 2 letter f) C. fisc., the supply of buildings/parts of buildings and
the land on which they stand, and of any other lands are exempt operations
without deduction right. As an exception, exemption does not apply to the supply
of new constructions, new parts of construction or building land. For the purposes
of this article, they are defined as follows:
1. building land means any developed or undeveloped land, which can bear
construction, as required by law. Classification of land as building land or land
with another destination at the time of sale by the owner, results from the planning
permission.
2. building means any structure fixed in the or on the ground;
3. delivery of a new construction or a part of it means the supply carried out no
later than December 31 of the year following the first occupation or use of the
premises or part thereof, as appropriate, following transformation;
4. The new construction includes any converted building or transformed part of
a building, if the cost of processing, without tax, amounts to 50% of the market
value of the building or part of the building as it is established by an expert report,
excluding land value after the conversion.13
Sales with no continuing basis.
These sales, being isolated however not focusing on obtaining revenues are
usually embodied by signing contracts for the sale of certain real estate personal
property.
Individuals are not considered to perform an economic activity within the
scope of the taxation when they get income from the sale of private housing or
other goods that have been used by them for personal purposes. In the category of
12 The economic activities comprise the activities of producers, traders or service workers,
including extractive, farming activities and the activities of liberal professions or the assimilated ones.
It also, constitutes economic activity the exploitation of physical or virtual goods for the purpose of
obtaining income in continuous form.
13 http://static.anaf.ro/static/10/Vrancea/Preciz-TVA-tranzactii-imobile.pdf
42 ADRIAN-MILUTIN TRUICHICI, LUIZA NEAGU
goods used for private purposes we can include constructions and, where
applicable, the related land being the personal property of individuals that have
been used for housing, including holiday homes, other property used for personal
purposes by individuals, and goods of any nature inherited or acquired as a result
of legal remedies provided for as restoration of property rights.
3. The setting of the VAT rate is made according to the estimated turnover
for the fiscal period, but in this case we refer to individuals who perform real
estate transactions occasionally, so one can’t consider achieving a turnover
specific to business activities.
Another legal text which supports the idea that these real estate transactions
do no submit to the legal provisions regarding VAT, is art. 41 which reads: "The
categories of income subject to income tax under the provisions of this title are as follows:
(.... ) h) income from transfer of property , as defined in art . 77 index 1”.
Under art. 1, paragraph 77, index. 1 “it is taxable any income from the transfer of
ownership of any type of construction and related land which are alienated within up to 3
years included, since the acquisition date as well as income from the transfer of land
ownership of any kind, without buildings.” Corroborating the above legal provisions
to those related to operations which are subject to value added tax, it is clear
beyond doubt that real estate transactions listed above are strictly subject to
income tax.
4. Sales with continuing basis
From a tax law perspective, operations have a continuing basis when they can
not be considered incidental operations.
However, given the complexity of real estate transactions, the context must be
carefully examined to determine with certainty whether or not the operation is
casual. It should be kept in mind that at pt. 66 par. 2 of the Implementing Rules of
the Tax Code, it is provided that the economic activity is considered to have started
from the moment that a person intends to perform such work, and the person's
intention must be assessed on the basis of objective elements, for example, that it
begins to engage costs and/or do preparatory investment required to start a
business.14 Economic activity is considered to be continuous from its start,
including the delivery of the goods or of parts of the constructed real estate, even if
it is a single property.
Situations where individuals making deliveries of immovable property
become taxable persons are explained by methodological norms for implementing
the Tax Code, respectively, Government Decision no. 1620/2009, published in the
Official Gazette no. 927 of 31 December 2009 by art. I, letter E pt. 3
14 http://static.anaf.ro/static/10/Vrancea/Preciz-TVA-tranzactii-imobile.pdf
Current VAT policy regarding the sale of immovable property by individuals 43
"According to art. 127 para. 2 C. fisc., the exploitation of tangible or intangible goods,
in line with the basic principle of the VAT system according to which the tax must be
neutral, refers to any transaction, regardless of their legal form .... "
”Individuals are not considered to perform an economic activity within the scope of the
tax when they obtain income from the sale of private housing or other goods that have been
used by them for their own purposes.15"
In case of land acquisition and / or construction by the individual for the
purpose of sale, the delivery of these goods is a continuing activity if the individual
achieves more than one transaction during a calendar year. However, if the
individual menus already the building of a property for sale, economic activity
being already considered begun and continued, any subsequent transactions will
no longer be considered occasional.
Although the first delivery is regarded as occasional, if it occurs a second
delivery in the same year, the first delivery will not be taxed but it will be taken
into account in calculating the limit of VAT ( EUR 65,000 = 220,000 lei on 1 July
2012 ) provided at art. 152 C. fisc..16 Where immovable property is co-owned by a
family, if there is a requirement to register for tax purposes for selling the
immovable property, one spouse will be designated to fulfill this obligation. The
Decision of the Court of Justice of the European Union on real estate transactions made
during the period 2007 - 2009 by individuals, transactions where there was no provision on
the VAT when signing sales contracts.
On 7th November 2013 the Court of Justice of the European Union issued a
decision that amends the calculation of VAT on real estate transactions made by
individuals.17
Analyzing the preliminary question addressed by the reference court, which
seeks essentially to ascertain, having regard to art. 73 and 78 of the VAT Directive
if, when the price of a good has been established by the parties with no mention of
VAT, and the supplier of those goods is liable for payment of VAT for operation
subject to tax, the price agreed must be considered the price which includes VAT
already or the price excluding VAT, which must be increased by its value, there
have been highlighted the following:
15 In the category of goods used for private purposes include construction and , where
applicable, the related land their personal property of individuals that have been used for housing,
including homes, other property used for personal purposes by individuals, and goods of any nature
inherited or acquired as a result of legal remedies provided for restoration of property rights laws .
16 http://static.anaf.ro/static/10/Vrancea/Preciz-TVA-tranzactii-imobile.pdf
17 Connex cases C 249/12 şi C 250/12, Tulic şi Plavosin having as object claims for preliminary
decision formulated based on article 267 TFUE by the High Court of Cassation and Justice , by the
decisions of 15 of March 2012, received by the Court at 22 of May 2012, in the procedures Corina-Hrisi
Tulic (against National Agency of Fiscal Administration) – General subsidiary for Solving Disputes
(C 249/12), and Clin Ion Plavosin against General subsidiary of Public Finances Timiş – The Office for
Solving Disputes, Activity of Fiscal Inspection – Office for fiscal inspection Timiş (C 250/12).
44 ADRIAN-MILUTIN TRUICHICI, LUIZA NEAGU
According to the general rule laid down in art. 73 of the VAT Directive, the
taxable amount for the supply of a good or a service, for consideration, consists of
the counterpart actually received by the taxable person in this regard. This
counterpart is the subjective value, that is the real value actually received, and not
estimated according to objective criteria.18
This rule must be applied in accordance with the basic principle of the above
mentioned directive, according to which the VAT system is intended to charge
only the final consumer.19 Or, when a sales contract was concluded without
mentioning the VAT, if the supplier under national law can not recover from the
purchaser VAT retrospectively demanded by the tax administration, taking into
account the totality of the price, without deduction of VAT, the basis on which the
applicable VAT would result in the application of VAT on the supplier and
therefore would conflict with the principle that VAT is a tax on consumption,
which should be borne by the final consumer. On the other hand, such a
consideration would conflict with the rule that the tax authorities may not require
by way of VAT a value superior to that received by the taxpayer. 20
Instead, this is not the case if the supplier, under national law, would be able to
add to the price stipulated a fitting supplement corresponding to the duty
applicable to the operation and to recover it from the purchaser of the assets.
It is important to stress again that one of the essential characteristics of VAT is
that this charge is exactly proportional to the price of goods and services
concerned. This implies that all suppliers contribute to VAT in the same proportion
in relation to the overall value received for goods sold.
Concluding, the Court of Justice of the European Union has determined that
the Directive 2006/112 / EC of 28 November 2006 on the common system of value
added tax, in particular Articles 73 and 78 thereof, must be interpreted as meaning
that, when the price of an asset has been established by the parties without any
mention of the value added tax and the supplier of those goods is liable for
payment of value added tax due on the transaction subject to tax, the price agreed
must be considered, if the supplier is not able to recover the value added tax
required by the tax administration from the purchaser, as already including value
added tax.
18 To be seen especially the Decision of 5 February 1981, Coöperatieve Aardappelenbewaarplaats,
154/80, Rec., p. 445, pct. 13, and Decision 26 April 2012, Balkan and Sea Properties and Provadinvest,
C-621/10 şi C-129/11, pct. 43.
19 To be seen especially the Decision Elida Gibbs, pct. 19, Connoisseur Belgium, C-69/11, pct. 21.
20 To be seen especially the Decision Elida Gibbs, quoted before, pct. 24, Decision of 3 July 1997,
Goldsmiths, C-330/95, Rec., p. I-3801, pct. 15, as well as Decision Balkan and Sea Properties şi
Provadinvest, quoted before, pct. 44.
Current VAT policy regarding the sale of immovable property by individuals 45
5. Brief conclusions
In general, if an individual more than one real estate operation consisting of
sales of land and buildings, other than those used for personal purposes that fall
outside the scope of VAT, performs during a calendar year, they become a taxable
person whether or not the transaction is exempt under art. 141 para. 2 letter f) C. fisc.
However, if the real estate operations consist only in special sales that do not
meet the legal conditions to be regarded as new sales of any other immovable good,
they are exempt from VAT; therefore, even if the individual is, in principle, taxable
for these operations, they have no obligation to pay the corresponding VAT.
References
[1] Bistriceanu Gh. D., Boaja M., (2006), Sistemul fiscal al României, Editura Universul
Juridic, Bucureşti;
[2] Costaş C.F., Minea M. Ş., (2015), Drept fiscal, Editura Universul Juridic, Bucureşti;
[3] Dasclu D., (2014), Tratat de contecios fiscal, Editura Hamangiu, Bucureşti;
[4] Niculeasa M.-I., (2014), Summa fiscalis. Tratat de drept fiscal şi financiar public, Editia a
III-a, revizuit şi adugit, Editura Universul Juridic, Bucureşti;
[5] Şaguna D.D., Şova D., (2009), Drept fiscal, Ediia a III-a, Editura C.H. Beck,
Bucureşti;
[6] Terra B., Kajus J., Guide A., to the European VAT Directives: Commentary on the Value
Added Tax of the European Community. Journal of Health Politics Policy and Law no. 1/1993;
[7] Tufan C., Tempea I., (1999), Taxa pe valoare adugat în România, Editura All Beck,
Bucureşti;
[8] Vcrel I., (1995), Relaii financiare internaionale, Editura Academiei Române,
Bucureşti.