Before 1 January 2011, all transfers of real estate were exempt from VAT. As of 1 January 2011, the VAT exemption has not been unconditional. In 2017, SKAT increased a company’s VAT liability for the fourth quarter of 2015, as SKAT was of the view that the company should have paid VAT in connection with the transfer of certain plots of land. Bachmann/Partners Law Firm appealed the decision, and on 1 September 2021, the National Tax Tribunal issued its decision in the case, in which SKAT’s decision was amended. The core of the case was whether certain plots with foundations constructed before 1 January 2011 should be regarded as building plots or whether they constituted real estate with old buildings. SKAT took the view that they were building plots. The National Tax Tribunal reached the opposite conclusion
In the mid-2000s, a company purchased a site that had been used as a campsite. The site was located within the coastal protection zone and was therefore attractive for development. The company initiated development of the site so that various forms of year-round residential buildings could be constructed on the land. The company arranged for the local development plan for the area to be amended and prepared the site for construction. Agreements were also entered into with architects for the preparation of draft design proposals for the construction. When the financial crisis occurred, the company was forced to change its original intentions of developing the area itself. The plots of land were therefore gradually sold to buyers who were themselves responsible for constructing houses on the individual plots
Before 1 January 2011, the company had foundations constructed on a number of the plots. In 2015, a number of these plots with foundations were partly sold to external buyers and partly transferred through a tax-free transfer of assets to a company, which shortly thereafter was demerged into three companies
In 2017, SKAT took the view that the plots constituted building plots for VAT purposes, regardless of the fact that foundations had been cast on the plots prior to 1 January 2011. SKAT acknowledged that the decisive criterion for whether the plots should be subject to VAT was whether the casting of foundations had commenced before 1 January 2011. It was also not disputed during the case that foundations had been constructed on the plots. However, SKAT’s position was that because the construction on the foundations had not been completed within the usual prescribed timeframe, there was no ongoing construction project that could be sold exempt from VAT. SKAT based its view on a number of rulings from the Tax Council in which such subjective factors had been taken into account
No VAT must be imposed on the transfers. The National Tax Tribunal emphasized that the casting of foundations had been initiated before 1 January 2011, that the plots were acquired before the changes to the VAT rules in 2009, and that the project planning had also been commenced before the changes to the VAT rules in 2009
The outcome reached by the National Tax Tribunal was not surprising. What was surprising, however, was that the Danish Tax Agency consistently maintained throughout the appeal process that subjective factors concerning intentions were decisive in determining whether the transfers were subject to VAT. The day after SKAT issued its decision, the National Tax Tribunal, on 29 September 2017, issued a decision in a case that bore significant similarities to the case decided by the National Tax Tribunal on 1 September 2021. That case also concerned the transfer of a plot with a foundation constructed before 1 January 2011. The National Tax Tribunal concluded that the transfer was exempt from VAT. In that decision, subjective considerations regarding the intentions associated with the purchased real estate were entirely unmentioned. This decision has subsequently been followed by similar decisions from the National Tax Tribunal. In the so-called KPC case, the Court of Justice of the European Union also found that a buyer’s intention to demolish an existing building could not justify changing the nature of the property from real estate with old buildings to a building plot
The decision of the National Tax Tribunal of 1 September 2021 shows that the Tribunal takes a critical approach to the legal interpretation of the Danish Tax Agency where there is no support in the wording of the law or in the preparatory works for including subjective factors in the assessment of whether a transfer of real estate should be subject to VAT or not
In our opinion, the decision of the National Tax Tribunal of 1 September 2021, when considered together with the decision of 29 September 2017, provides grounds for requesting that previous increases in VAT liability concerning comparable circumstances be amended
Bachmann/Partners Law Firm advises on all matters relating to VAT. If you would like to learn more about the decision of the National Tax Tribunal of 1 September 2021, you can contact Christian Bachmann at tel. 30 30 45 21 / chb@bachmann-partners.dk, Diana Mønniche at tel. 20 71 78 62 / dme@bachmann-partners.dk or Peter Hansen at tel. 40 32 35 35 / pha@bachmann-partners.dk
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