VAT regime for sale of immovable properties by individuals is addressed by CJEU

In the context of the real estate peak encountered prior to 2009 (when the number of transactions performed by individuals increased significantly), certain clarifications have been introduced to the Methodological Norms to the Fiscal Code as of 1 January 2010. These clarifications mention the conditions under which individuals were deemed as taxable persons for VAT purposes when performing real estate transactions.

In addition, when such individuals were considered taxable persons from a VAT perspective, another assessment was then required to determine their obligation to register for VAT purposes. Nonetheless, with regards to the VAT-able transactions being made (where the individuals were deemed as taxable persons liable to register for VAT purposes), the Romanian tax authorities assessed additional VAT liabilities on top of the consideration paid by the buyer.

This approach raised controversies due to its negative impact over the individuals who were in the position to bear the additional VAT liabilities. Recently, the Court of Justice of the European Union has been involved in cases concerning this issue. Taxand Romania presents the course of action on this particular matter.

Based on the clarifications introduced, individuals that performed real estate transactions on a continuous basis may become taxable persons from a VAT perspective, and also liable to register for VAT purposes.

The outcome of such VAT rules was the generation of additional costs related to the transaction performed. There were individuals who were assessed by the Romanian tax authorities as taxable persons liable to register for VAT purposes (and VAT liabilities were imposed in this respect), on top of the price received, thus generating additional costs to the individual. In the context of these transactions, the most important question was whether the output VAT due should be considered as already included in the price paid, or whether it should be computed as an additional cost.

With the view to clarify this, the Romanian Central Fiscal Commission issued a decision which stated that, for taxable supplies of real estate properties (land and buildings) the amount of VAT due for the transaction is determined as follows:

  1. by applying the VAT rate on top of the price, if the parties agreed that VAT is not included or when no specific provision was included with respect to VAT or
  2. by gross-up mechanism, if the parties agreed in the contract that VAT is included in the price.

This decision was not favourable to many and did not clarify the issue. especially since most of the agreements concluded by individuals selling real estate did not include any reference to the VAT. Thus, once they were assessed as taxable persons liable to register for VAT purposes, additional VAT liabilities were imposed at the level of the seller, with few or no possibilities to recover such VAT from the buyer.

As a result, the matter of the applicable taxable base was referred to the CJEU by two preliminary rulings, namely C-312/13 Rosu and C-313/13 Ienciu, both being addressed by Alba Iulia Court of Appeal. More specifically, the two preliminary rulings seek an answer from the CJEU with respect to the taxable base for the case where:

  1. the seller is reassessed as a taxable person for VAT purposes, liable to register for VAT purposes and
  2. the agreement concluded between the parties for the supply of real estate does not make any reference with respect to VAT.

The question referred explores whether the taxable base is represented by the consideration agreed, less the VAT due (gross-up mechanism), or by the entire consideration agreed (thus VAT being charged on top of the price).

Depending on the answer to be given by the CJEU, the individuals might be in the position to either pay the VAT out of the consideration previously received from the buyer, or, to apply VAT on top of the consideration already received from the buyer. However, under both situations, the likelihood of recovering such VAT from the buyer is minimal, and therefore the VAT would end up being a cost at the level of the supplier.

Via VAT regime for sale of immovable properties by individuals is addressed by CJEU | Taxand.

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