The sale of a building intended for demolition after the sale cannot be reclassified as the sale of a building plot, subject to higher VAT. This is the ruling of the Court of Cassation in Order No. 6788/2023, which pertains to a notice of additional VAT assessment issued following the reclassification of the sale of a building by the Revenue Agency as the sale of a building plot.
The Opinion of the Revenue Agency
The objection was based on the fact that, according to the Office’s opinion, given that the seller had obtained permission for demolition before the conclusion of the agreement, demolition had commenced immediately after the conclusion of the sale, and the buyer was a real estate company. According to the common intention of the parties, the object of the transaction should be identified as a building plot rather than the building itself. This was also considering that the sale price was significantly higher than the property’s value according to the cadastral income.
The Ruling of the Court of Cassation
The Court of Cassation, drawing on the principles established by the European Union Court of Justice, reminds us that the sale of land, which includes an as-yet-undemolished building at the time of sale, cannot be qualified as the sale of a building plot when demolition is economically independent of the sale of the land and does not constitute a single transaction with it. This holds true even if the parties’ intention was to demolish the existing building partially or entirely. The Court also refers to some domestic legal rulings that have examined the issue of interpreting the parties’ intentions in the case of the sale of a subsequently demolished property.
In this regard, in line with EU law, the Court notes that, in the context of income taxes, the Court of Cassation has excluded the possibility of the tax authority reclassifying the sale of a building, even when the parties have agreed to demolish and reconstruct with an increased volume, as the sale of the underlying building plot. The tax office is prohibited, in the process of reclassification, from deviating from the distinct tax regime specifically provided by the legislator for the sale of buildings and land.
In the same regard, concerning registration tax, the Court of Cassation has previously affirmed that the sale of a property, even if it is subsequently destined for demolition, should be subject to registration tax based on its legal effects (such as the sale of the building) without considering what happens subsequently (for example, demolition).
Conclusion
In light of the above, in the present case, the Court of Cassation asserts that in the absence of elements emerging from the contract that allow for the identification of the object of the transaction as a building plot rather than the building itself, reclassification is not admissible
