A question has arisen during property purchases about whether the tax base for real estate purchasesthe gross or net purchase price should be considered when determining the market value that forms the basis for property transfer tax, especially if the property includes VAT. Although no official confirmation has been made yet, it seems that the matter may ultimately be decided in favor of the net purchase price.
Market Value and Property Transfer Tax Basis
As is known, in the case of property acquisition, the property transfer tax is 4% of the market value of the property. During the purchase, the buyer typically submits data on the B400 form, indicating what they believe the true market value of the property to be. Ultimately, the tax authority (NAV) determines the market value, which may differ from the submitted value if the tax authority deems it justified.
Tax base for real estate purchases: Gross or Net?
The purchase price of the property generally includes VAT, but it is not clear whether the market value for tax purposes should be based on the gross price (including VAT) or the net price (excluding VAT). This could be particularly important, as VAT can vary from 5% to 27%, which could result in a significant difference in the amount of property transfer tax assessed.
In 2012, the Curia (Hungarian Supreme Court) dealt with this issue, and although the decision was not entirely clear, it favored the net purchase price as the basis for property transfer tax, which could be more favorable for taxpayers.
The Practice of the Tax Authority
The NAV will accept the net purchase price if it is stated on the B400 form.
However, the tax authority often asks taxpayers to clarify any discrepancies between the purchase contract and the data provided on the B400 form. Although well-prepared taxpayers' arguments may be successful, it is still not guaranteed that the NAV will automatically calculate the tax based on the net purchase price.
What Steps Can Buyers Take?
If you are purchasing property and the purchase price includes VAT, we recommend that you list the net purchase price on the B400 form and provide a justification for your decision, if necessary. The tax authority may ask for further clarification, but with well-prepared arguments, it is possible to successfully have the net purchase price accepted.
Important Warning
Although the tax authority is increasingly accepting the net purchase price, buyers still need to support their chosen purchase price with thorough documentation and justification. Those who are unsure about what amount to include on their form should consult an expert or a lawyer to avoid potential problems later.
Summary
When determining the basis for property transfer tax during a property purchase, the net purchase price is becoming more widely accepted, but it is important to be aware that the tax authority may still request justification for the chosen amount. Well-prepared buyers can ensure that the tax is calculated based on the net purchase price by providing the proper arguments and documentation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
