In the decision of 20 October 2021, Ra 2019/13/0084, the Administrative High Court dealt with the question under which conditions the transitional provision concerning the possibility of an option for VAT liability of tenancies is to be applied in the case of a transfer of a building for consideration by way of singular legal succession. Since the amendment of Sec 6 para 2 UStG with the 1. StabG 2012, opting-in for VAT liability for tenancies that started after 1 September 2012 is only possible if the tenant uses the building almost exclusively (more than 95 %) for transactions that do not exclude the deduction of input tax.
In 2014, a limited liability company purchased a property on which an office building is located. At the time of the purchase, a small part of the total area of the building was leased to companies with the option to treat the rental relationship with VAT following the previous regulations , as the rental agreements had been concluded and actually started before 31 August 2012.
The taxpayer claimed the entire sales tax associated with the purchase and renting out as input tax. The input tax on the areas rented to the entrepreneur, for which the seller had opted to pay VAT following the previous regulations, was not taken into account by the tax authority. The tax authority stated that the purchase of the property had resulted in a change of landlord, which is why the option to treat the rental as subject to VAT could no longer be exercised.
The Tax Appeals Court upheld the appeal and took the input taxes claimed by the taxpayer into account in full. The court stated that, according to the wording of the transitional provision, it is decisive when the rental relationship actually started. With the purchase of the real estate, the GmbH had entered into the lease agreements – which already existed at the time of the real estate purchase in 2014 – in a mandatory manner under civil law. Due to the legal formal connection of the transitional provision, there is therefore no "new" rental relationship for VAT purposes and the option for the VAT treatment of the tenancies can continue to be exercised in full.
The Administrative Court first stated that the restriction of the option for VAT liability is intended to prevent an entrepreneur who is in principle not entitled to deduct input tax from obtaining the full input tax deduction from the construction of a business building by means of an "advance arrangement with a construction company". In order to avoid cases of hardship, the legislator has provided a transitional provision that the new regulation shall not apply to rental and lease relationships which already started as of 31 August 2012. According to the wording of the transitional provision, the starting of the rental or lease relationship shall be decisive. This is intended to prevent the new legal situation with a restricted VAT option from being applied to existing rental and lease relationships without any further action on the part of the parties concerned. In the opinion of the Administrative High Court, only in such cases can a case of hardship be said to exist.
In view of the clear objective of avoiding tax structuring and the restrictively interpreted exception (hardship cases), the Administrative High Court stated that the previous regulations should thus only be applied in exceptional cases.
For this case, this means that even if the purchaser enters into the existing contract under civil law in the event of the purchase of a leased property, this does not in principle prevent the application of the new regulations and thus the limited option. Such an understanding, which would amount to a formal link to civil law, would run counter to the clear objective of the legislator to avoid tax arrangements. There is also no case of hardship, since the purchaser has already made his dispositions in knowledge of the new legal situation.
In summary, the Administrative High Court ruled that due to the change in the person of the landlord – through the sale of the leased property – a new tenancy relationship between the old tenant and the new landlord started for VAT purposes, which means that the option to treat the rental relationship with VAT no longer applies.
According to the Administrative High Court, in the event of a singular legal succession to a tenancy, there is a new tenancy, whereby a waiver of the tax exemption for this new tenancy is only possible under the limited conditions of the 1. StabG 2012 (tenants who use the building almost exclusively, that means more than 95%, for transactions that do not exclude the deduction of input tax).
Georg Lenhardt ist Berufsanwärter in der Steuerberatung bei Deloitte Wien. Seine Tätigkeitsschwerpunkte liegen in der steuerlichen Beratung von Privatpersonen (Private Clients), Privatstiftungen und Familienunternehmen sowie im Bereich der Immobilien- und Kapitalvermögensbesteuerung.
Mag. Johanna Kloner ist Steuerberaterin bei Deloitte Wien und ist auf die Beratung von Privatpersonen (Private Clients), Familienunternehmen, Privatstiftungen sowie der Beratung im Bereich Immobilien- und Kapitalvermögensbesteuerung spezialisiert. Sie ist weiters Autorin diverser Fachbeiträge.