Valuation of soil of a real estate for real estate tax purposes
The Finnish Real Estate Tax Act refers to the Asset Valuation
Act for the purposes of valuation of real estate. According to the
referred provisions the soil and the buildings of a real estate are
valuated separately. The Supreme Administrative Court has on August
2012 given a decision concerning the valuation of the soil of a
real estate for real estate tax purposes.
According to the Asset Valuation Act buildings granted to the real
estates are taken into account when valuing the soil of the real
estate. In the matter discussed by the Supreme Administrative Court
the building permissions granted to a certain real estate entitled
to build premises under the ground level. Previously there has not
been a clear definition of concept of building rights that affect
the taxable value of the real estate and taxpayer demanded that
underground building rights should not be taken into account when
valuing the soil. However, the Supreme Administrative Court stated
that also these rights have to be noticed when evaluating the soil
and thus dismissed the appeal of the taxpayer.
The decision clarifies the concept of building right when it
concerns the valuation of the soil of a real estate in real estate
taxation. The decision might have considerable effects in real
estate taxation especially for those who own real estate with
underground building rights. In the future it is recommendable to
prepare oneself for increase of real estate tax due to the higher
valuation of the soil.
Deduction of Value Added Tax in housing companies
The Supreme Administrative Court has on summer of 2012 given a
decision concerning the right of housing company to deduct VAT
included in costs of renovations made to the balconies of the
dwelling in its taxation. According to the articles of association
of the housing company the shareholders are liable for maintenance
charges in relation to the shareholding.
Usually a housing company is not a corporation that engages in
business activities and thus it is not liable to include VAT in its
maintenance fees. Usually this means that a housing company cannot
deduct VAT that is associated to its expenses. According to the
Finnish Value added tax Act it is possible to voluntarily apply for
VAT registration for leasing of a real estate. In this case the
housing company had registered for VAT for renting of the business
premises it possessed.
In the Case that the Supreme Administrative Court discussed,
business premises of the building did not have balconies to which
renovations were targeted. All the shareholders had borne the costs
of the renovations in relation to their shareholding. Nevertheless,
the Supreme Administrative Court notices that the balconies are a
part of the building's façade and as the costs of
renovation were borne also by the shareholders of the business
premises. As a conclusion the company had the right to deduct VAT
included in renovation costs for the part that was targeted to
premises which it had registered for VAT.
The Decision of the Supreme Administrative Court did not itself
renew interpretation of law or legal praxis, but is does clarify
the VAT treatment of renovation services purchased by a housing
company that possesses rentable business premises. All
housing companies that are planning to do some major renovations to
the building should consider voluntary VAT liability if the company
possesses business premises. Although voluntary VAT registration
might cause some administrative burden with the renters, the
housing company gains notable tax benefits as it is able to deduct
VAT that would normally remain as a final cost for the company.
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.
