Briefing Document & Podcast: VAT on Land Registration – Analysis of Amărăşti Land Investment SRL (Case C-707/18)

1. Executive Summary:

This briefing analyzes the European Court of Justice (ECJ) judgment in Amărăşti Land Investment SRL v Direcţia Generală Regională a Finanţelor Publice Timişoara (Case C-707/18). The case clarifies the application of the VAT Directive (2006/112/EC) to situations where a purchaser incurs costs for the first-time registration of land in a national land register. The critical finding is that, even when the purchaser contractually agrees to handle and pay for the land registration, they are considered to be supplying a service to the vendor, impacting VAT deductibility.

2. Background:

The Dispute: Amărăşti Land Investment SRL (ALI), a company engaged in agricultural activities, purchased land in Romania. Romanian law requires land to be registered in the Land Register before a valid sale can be concluded. ALI incurred costs for the first-time registration of the land. ALI sought to deduct the VAT on these costs, arguing they were investment-related expenses. The Romanian tax authorities disagreed, arguing ALI supplied a service to the vendor, thereby requiring a VAT assessment.
Preliminary Ruling: The Tribunalul Timiş (Timiș Regional Court, Romania) referred several questions to the ECJ for a preliminary ruling on the interpretation of the VAT Directive.

3. Key Legal Provisions & Interpretations:

VAT Directive (2006/112/EC):
- Article 2: Defines transactions subject to VAT, including “the supply of services for consideration within the territory of a Member State by a taxable person acting as such.”
- Article 24: Defines “supply of services” as “any transaction which does not constitute a supply of goods.”
- Article 28: Crucially states: “Where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself.” This article is the cornerstone of the ECJ’s decision.
- Article 167: States that “A right of deduction shall arise at the time the deductible tax becomes chargeable.”
- Article 168: Outlines conditions for VAT deduction, stating that a taxable person is entitled to deduct VAT on goods and services used for “the purposes of the taxed transactions of a taxable person.”
Romanian Law: The Romanian Civil Code mandates land registration for valid property transfers.
- ECJ Interpretation: Agreement on Costs: The ECJ affirmed that the VAT Directive does not prevent purchasers and vendors from contractually agreeing on who bears the land registration costs. However, this agreement does not determine VAT deductibility. “The VAT Directive must be interpreted as not precluding the parties to a transaction, the aim of which is to transfer the ownership of immovable property, from agreeing a clause according to which the future purchaser will incur some or all of the costs of the administrative formalities relating to that transaction…However, the mere presence of such a clause in a bilateral promise for the sale of immovable property is not determinative in order to ascertain whether the future purchaser is entitled to deduct the value added tax…”
- Supply of Services: The ECJ held that ALI was deemed to have supplied services to the vendor, in accordance with Article 28 of the VAT Directive. “The future purchaser… who…carries out the necessary steps for the first registration of the property… by having recourse to the services provided by third parties who are taxable persons, is deemed to have supplied the services in question himself or herself to the future vendor, within the meaning of Article 28, even though the parties to the contract agreed that the sale price of that property does not include the value of the land-registration operations.”
- “Acting on Behalf Of”: The ECJ reasoned that because the initial land registration is the vendor’s legal obligation under Romanian law, the purchaser is effectively fulfilling that obligation on behalf of the vendor, even if the vendor does not directly reimburse the purchaser for these costs.
- No Requirement for “Consideration”: The ECJ highlighted that Article 28 does not require the service to be provided “for consideration.” The fact that ALI didn’t invoice the vendor for the land registration costs was irrelevant.

4. Implications & Practical Considerations:

VAT Deductibility: This ruling means that a purchaser who pays for the first-time land registration cannot automatically deduct the VAT incurred on those costs as an investment expense. The VAT treatment depends on whether the purchaser is invoicing the vendor for these services. If the purchaser is not invoicing the vendor, they may not be able to deduct the input VAT.
Application of Article 28: The case clarifies the broad scope of Article 28. Any time a taxable person fulfills a service that is legally the responsibility of another party, even without direct reimbursement, Article 28 is likely to apply.
Planning Considerations: Businesses involved in property investment should carefully consider the VAT implications of land registration costs. They should examine if these costs can be invoiced to the vendor, allowing them to deduct input VAT. Alternatively, they should consider negotiating purchase prices that reflect these costs.

5. Unanswered Question:

The ECJ did not directly address whether the land registration costs could be considered pre-investment operations, because it determined that ALI was supplying a service to the vendor.

6. Glossary of Terms:

Value Added Tax (VAT): A consumption tax assessed on the value added to goods and services.
VAT Directive (Council Directive 2006/112/EC): A European Union directive that establishes the common system of value added tax.
Taxable Person: An individual or entity that carries out economic activities and is subject to VAT.
Taxable Transaction: A transaction subject to VAT, such as the supply of goods or services for consideration.
Supply of Services: Any transaction that does not constitute a supply of goods, as defined in the VAT Directive.
Input Tax: VAT paid on goods and services purchased by a taxable person for use in their business.
Deduction of Input Tax: The right of a taxable person to deduct VAT paid on their purchases from the VAT they collect on their sales.
Land Register: A national register of immovable property that records ownership and other rights in land.
Preliminary Ruling: A ruling given by the Court of Justice of the European Union on the interpretation of EU law when a national court requests clarification.
Authentic Instrument: A legal document that has been executed and attested to by a notary or other public official.
Real Rights: Rights associated with the ownership or possession of property.
Promissory Vendor: A person who promises to sell land.

This briefing provides a high-level overview and should not be considered legal advice. Consult with a qualified tax professional for specific guidance