VAT and immovable property : an analysis of its potential treatment and purpose

Abstract

Purpose: This study considers the option to tax pursuant to immovable property transactions available under Article 137(1) of the VAT Directive (VATD) as an alternative to the present exemption. It also examines whether this new mechanism may lessen tax malpractices related to immovable property transactions. Design: The objectives of the study were achieved through a series of semi-structured interviews with interested parties representing three perspectives: the real estate industry, the government and tax practioners. Legislation, ECJ Case-Law and various journals provided an enhanced understanding of the topic. Findings The study ascertains that, whereas taxable persons transferring/letting immovable property may favour the option to tax, as it entitles them to claim input VAT, this may have considerable social burdens. Nevertheless, the research indicates that the imposition of VAT on transfers/letting of immovable property is likely to lower tax evasion. Conclusion: Given that the VATD offers EU member states the opportunity to limit the scope of the option, the dissertation identifies various ways in which the option's social implications may be lessened. Additionally, despite the ability of the option to tax to lower tax malpractices in the real estate sector, mainly by enforcing the maintenance of audit trails, the study recognises that its effectiveness would still depend on the introduction of further non-fiscal anti-abuse measures. Value: This dissertation provides the starting point for a more detailed evaluation of the topic. Although the option to tax is not yet mandatory, further analysis is very important given its availability under the VATD and its adoption in various member states.