CURRENT VAT POLICY REGARDING THE SALE OF IMMOVABLE PROPERTY BY INDIVIDUALS

Transcription

1 Current Law Review VAT policy vol. regarding II, issue 2, the July-December sale of immovable 2015, property p 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 Rădulescu" 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 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 VAT 2 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 * adrian_truichici@yahoo.com. ** cabinetavocatura@yahoo.com. 1 M. I. Niculeasa, Summa fiscalis. Tratat de drept fiscal şi financiar public, Ediţia a III-a, revizuită şi adăugită, Editura Universul Juridic, Bucureşti, 2014, p 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.

2 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 delivery 7 /provision 8 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 premises 10 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 level C. F. Costaş, M. Ş. Minea, Drept fiscal, Editura Universul Juridic, Bucureşti, 2015, p I. Văcărel, Relaţii financiare internaţionale, Editura Academiei Române, Bucureşti, 1995, p ; C. Tufan, I. Tempea, Taxa pe valoare adăugată 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. Dascălu, Tratat de contencios fiscal, Editura Hamangiu, Bucureşti, 2014, p D.D. Saguna, D. Şova, Drept fiscal, Ediţia a III-a, Editura C.H. Beck, Bucureşti, 2009, p Art. 132 C. fisc. 8 Art. 133 C. fisc. 9 D.D. Şaguna, D. Şova, op. cit., p Gh. D. Bistriceanu, M. Boaja, op. cit., p

3 Current VAT policy regarding the sale of immovable property by individuals 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 activities 12 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

4 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

5 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 by individuals, transactions where there was no provision on the VAT when signing sales contracts. On 7 th 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 Connex cases C 249/12 şi C 250/12, Tulică 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 Tulică (against National Agency of Fiscal Administration) General subsidiary for Solving Disputes (C 249/12), and Călin 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).

6 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 To be seen especially the Decision Elida Gibbs, pct. 19, Connoisseur Belgium, C-69/11, pct 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.

7 Current VAT policy regarding the sale of immovable property by individuals 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] Dascălu 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, revizuită şi adăugită, Editura Universul Juridic, Bucureşti; [5] Şaguna D.D., Şova D., (2009), Drept fiscal, Ediţia 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 adăugată în România, Editura All Beck, Bucureşti; [8] Văcărel I., (1995), Relaţii financiare internaţionale, Editura Academiei Române, Bucureşti.