Legal Alert – Tax Solutions for Real Estate Industry
Valuation of soil of a real estate for real estate tax purposes
The Finnish Real Estate Tax Act refers to the Asset Valuation Act for the purposes of valuation of real estate. According to the referred provisions the soil and the buildings of a real estate are valuated separately. The Supreme Administrative Court has on August 2012 given a decision concerning the valuation of the soil of a real estate for real estate tax purposes.
According to the Asset Valuation Act buildings granted to the real estates are taken into account when valuing the soil of the real estate. In the matter discussed by the Supreme Administrative Court the building permissions granted to a certain real estate entitled to build premises under the ground level. Previously there has not been a clear definition of concept of building rights that affect the taxable value of the real estate and taxpayer demanded that underground building rights should not be taken into account when valuing the soil. However, the Supreme Administrative Court stated that also these rights have to be noticed when evaluating the soil and thus dismissed the appeal of the taxpayer.
The decision clarifies the concept of building right when it concerns the valuation of the soil of a real estate in real estate taxation. The decision might have considerable effects in real estate taxation especially for those who own real estate with underground building rights. In the future it is recommendable to prepare oneself for increase of real estate tax due to the higher valuation of the soil.
Deduction of Value Added Tax in housing companies
The Supreme Administrative Court has on summer of 2012 given a decision concerning the right of housing company to deduct VAT included in costs of renovations made to the balconies of the dwelling in its taxation. According to the articles of association of the housing company the shareholders are liable for maintenance charges in relation to the shareholding.
Usually a housing company is not a corporation that engages in business activities and thus it is not liable to include VAT in its maintenance fees. Usually this means that a housing company cannot deduct VAT that is associated to its expenses. According to the Finnish Value added tax Act it is possible to voluntarily apply for VAT registration for leasing of a real estate. In this case the housing company had registered for VAT for renting of the business premises it possessed.
In the Case that the Supreme Administrative Court discussed, business premises of the building did not have balconies to which renovations were targeted. All the shareholders had borne the costs of the renovations in relation to their shareholding. Nevertheless, the Supreme Administrative Court notices that the balconies are a part of the buildings façade and as the costs of renovation were borne also by the shareholders of the business premises. As a conclusion the company had the right to deduct VAT included in renovation costs for the part that was targeted to premises which it had registered for VAT.
The Decision of the Supreme Administrative Court did not itself renew interpretation of law or legal praxis, but is does clarify the VAT treatment of renovation services purchased by a housing company that possesses rentable business premises. All housing companies that are planning to do some major renovations to the building should consider voluntary VAT liability if the company possesses business premises. Although voluntary VAT registration might cause some administrative burden with the renters, the housing company gains notable tax benefits as it is able to deduct VAT that would normally remain as a final cost for the company.