Using a proxy to prepare a property for sale is equivalent to a business activity by the owner in the eyes of the tax authorities and is subject to VAT regulations. The position does not change, even if the buyer is the proxy. The authorities consider the seller of the property to be a VAT taxpayer even in the case of a one-off (occasional) transaction.

This position is enforced by the authorities (despite different assessments expressed by voivodeship administrative courts) even in the case of granting a power of attorney to the future buyer, who makes the purchase of a given property conditional on a change in its legal status and wants to take care of the relevant formalities himself.

During a recent case, the taxpayer defended himself by pointing out that the activities related to maintaining the status of the building plot and the request for exclusion from forest production were made at the express request of the buyer, who expected the property to comply with his requirements at the time of sale.

The property owner gave the buyer permission to perform the necessary activities on his behalf (conduct all formal and legal matters related to the entire process preceding the issuance of location decisions and building permits, apply to suppliers of all utilities to connect the planned investment to necessary networks, obtaining all decisions, resolutions, agreements and opinions in order to correctly connect the investment to the necessary utilities, etc.).

Despite this, the tax authorities found that in connection with the sale of the real estate, the owner of the real estate had become a VAT taxpayer for this one activity, which was the sale of the real estate. Thus, in the opinion of the tax authorities, the sale of real estate should have been subject to VAT.  The tax authorities also found that the owner’s activities went beyond the scope of private property management and should be considered as an economic activity in the field of real estate trading.

In the judgment of June 2021, the voivodeship administrative court did not agree with the authority’s assessment and recalled that economic activity within the meaning of the Value Added Tax Act is any activity of producers, traders or other service providers, also when the activity was performed on a one-off basis, but in circumstances indicating the intention to perform activities repeatedly.

In the opinion of the court, activities related to the ordinary exercise of the right of ownership cannot, by themselves, be regarded as conducting economic activity. The sheer number and scope of sales transactions made is not decisive, since the scope of the sales transactions cannot be used as a criterion for distinguishing between activities carried out privately which are outside the scope of the VAT directive and activities constituting an economic activity.

The situation is different when an owner takes active measures in the field of real estate trading and engages funds similar to those used by producers, traders and service providers. Such active activities may consist, for example, in preparation of the site for the installation of utilities or in marketing activities. Such activities do not fall within the scope of the day-to-day management of private property, therefore, in such a situation, the delivery of building land cannot be regarded as an activity related to the ordinary exercise of the ownership right.

According to the court, to recognise that a given person acts as a VAT taxpayer, it is necessary to establish that he or she carries out professionally, business activities in the field of real estate trading. Each time it requires checking whether a given transaction was carried out in connection with conducting business activity in this specific scope. It is not enough to state that a given person conducts economic activity at all. It must be an activity with a specific profile, because the performance of a given activity does not prejudge its taxation even on several occasions. The assumption that a given person, selling land, acts as a VAT taxpayer conducting commercial business activity, requires establishing that his activity in this field takes a professional (business) form, which is manifested in the activity of that person in the field of real estate transactions, which may indicate that his / her activities take an organized form.

When assessing the activities of the person selling the real estate, one should also take into account the activities at individual stages of the seller’s activity as a whole, and not only separately.

For these obvious reasons, in the opinion of the court, there were no grounds to recognize the seller’s activities as an economic activity within the meaning of the VAT Law.

Despite the clear and – it seems – convincing position expressed by the voivodeship administrative court, the tax authorities decided to bring a cassation appeal. This means that taxpayers selling real estate will soon be exposed to disputes with the tax authorities. At the same time, it will cause uncertainty on the real estate market and increase transaction risk.

Bernard Łukomski
Attorney-at-law
Tax advisor
Tel: 608 093 541