Legal Alert – Finnish Supreme Administrative Court’s New Rulings Clarify VAT Treatment of Parking Business Operations
The Finnish Supreme Administrative Court (SAC) on 6 April 2016 issued four rulings regarding VAT on parking business operations. This question has been somewhat unclear, and the provisions of national legislation have proven to be difficult to apply. These newly-issued rulings provide some answers to the current ambiguity concerning VAT treatment.
Under the Finnish VAT Act, the letting of parking spaces is subject to VAT. This provision is an exception to the principal rule that transfers of immovable property are exempt from VAT. VAT on these activities has been under scrutiny of the tax authorities in Finland. In addition, the SAC and the Court of Justice of the European Union (ECJ) have issued various rulings on the subject over the years. To some extent, in the Finnish tax practice the scope of taxable letting of premises for parking space can be considered to have been interpreted rather narrowly when compared to the case law of the ECJ. The new rulings widen the scope of taxable parking operations in terms of not considering the detailed plan provisions to be decisive. However, the link between letting premises for parking and other purposes still seems to remain tight, which results in regarding the two leases a single VAT exempt transaction under certain circumstances.
- The first of the published rulings is significant in addressing the question of relevance of the detailed plan provisions to the VAT treatment of transfer of parking spaces. The operations of a parking company were seen as taxable parking operations for the purposes of VAT. In its reasoning the SAC justifies that merely the fact that the parking spaces are determined in the detailed plan provision does not as such generate a single economic transaction closely linked to VAT exempt transfers of apartments and commercial premises.
- The second ruling concerned an automated car parking system operated by a property company situated on the same site with residential buildings. Among other things, the SAC concluded that due to the housing companies‘ permanent right to use the parking spaces for an indefinite period of time, the operations of the property company were not considered as letting of parking sites subject to VAT.
- The third ruling dealt with the shareholders’ right to use a pier on the grounds of ownership of shares in the company owning the dock and operating the pier. Due to the fact that the right to use the pier is based on ownership of shares and paying a maintenance fee, which is not restricted to a specified period of time, the operations of the company were not considered as taxable transfers of parking space but as VAT exempt letting of immovable property.
- The fourth ruling discussed the right of a property company owned by a municipality to apply for registration as a VAT taxable person with regard to the leasing of premises. In the circumstances of the case the property company had the right to apply for VAT registration regarding transfers of immovable property in a car park.
Implications of the rulings
Many of the aspects of VAT on the letting of premises and sites for the parking of vehicles still remain obscure. The difficulty of applying the provisions is also reflected by the fact that in three of the four rulings, the SAC did not agree unanimously on the outcome. It can however be concluded that the previously unclear effect of the detailed plan provisions on applying the provision on transfer of parking spaces to residents now appears to be resolved. The rulings also give some further guidance on the circumstances where two leases constitute a single economic transaction.
In light of the new rulings, a review of the current parking operations is recommended. It is also advisable to conduct a careful analysis of any real estate transactions involving transfers of parking space at an early stage of planning an investment.