Use of the guide value in determining the real estate acquisition tax base
For the purpose of determining the real estate acquisition tax base, a taxpayer has the possibility to choose either the price determined by an expert valuation or the so-called guide value (“směrná hodnota”) as the comparative tax value. The Financial Administration has so far argued that the taxpayer can no longer change the selected option once the tax return is submitted, for example by filing an additional tax return. However, the Municipal Court in Prague has now expressed the view that the taxpayer may change its decision until the tax is assessed.
When buying real estate, the buyer is required to pay a 4% real estate acquisition tax or 75% of the so-called comparative tax value, whichever amount is higher. According to the Senate’s Ordinance No. 340/2013 Coll., on Real Estate Acquisition Tax, since 1 January 2014, taxpayers have had the option of choosing the comparative tax value either according to an expert valuation, or for selected real estate (e.g. family houses and apartments, garages or family recreation buildings), i.e. the guide value.
In the case of the expert valuation, the procedure is simple; the taxpayer compares the purchase price and 75% of the price according to the expert valuation and then calculates the tax from the higher amount and makes a payment to the tax authority within the statutory deadline.
In the case of the guide value, the procedure is different. The guide value is a form of the “market” price, which is determined by the Tax Administrator itself on the basis of prices of real estate at the place where the real estate is located, in a comparable time period, taking into account the type, location, purpose, condition, age, equipment and construction technical parameters. In the tax return, only a tax prepayment in the amount of 4% of the purchase price of the property is stated.
The Tax Administrator then makes a comparison between the purchase price and 75% of the guide value it calculates on the basis of the information provided by the taxpayer in the tax return. If the purchase price is higher, the Tax Administrator assesses the real estate acquisition tax in the same amount as the tax prepayment calculated by the taxpayer. If the guide value is higher, the Tax Administrator assesses the tax via a payment assessment notice to be paid within an alternative due date of 30 days.
If the guide value is selected, the taxpayer may have an unpleasant surprise involving the amount of the tax assessed by the Tax Administrator as the guide value may vary considerably (especially in more remote areas) from the purchase price. However, from the wording of the Ordinance, it was unclear whether the taxpayer is allowed to revisit its choice after such a finding and use the valuation price set by expert.
The Municipal Court in Prague has recently addressed this question. In the case in question, the taxpayer first selected the guide value and provided all necessary data for its determination in the tax return. Upon receipt of a payment assessment notice for a supplementary tax payment, which was determined on the basis of the guide value and which was higher than the purchase price, the taxpayer filed an appeal and requested a change of the comparative tax value from the guide value to the valuation price determined by expert. However, the Tax Administrator rejected this procedure and the Municipal Court upheld its decision. According to the Municipal Court, the purpose of an appeal is to remedy the deficiencies of the decision or procedures, not to change the procedure originally selected. Especially because the taxpayer has an opportunity to calculate the guide value on the website of the Financial Administration prior to submitting the tax return (http://smernahodnota.financnisprava.cz). Therefore, the taxpayer’s request for change of the determination of the comparative tax value to the valuation price determined by expert can only be accepted until the tax is assessed.
When selecting the guide value, the assessment procedure usually takes longer, as the Tax Administrator needs to verify the information provided by the taxpayer to calculate the guide value. The length of the assessment procedure is not specified by law or by any other regulation, so it always depends on the particular Tax Administrator, the type of real estate and the information necessary for verification, and it is during this time that taxpayers still have a final opportunity to change their original decision.