The Supreme Administrative Court (NSA) ruled on February 12, 2014 (case ref. no. II FSK 500/12) to confirm that, even though an enterprise may be a traded object, the regulation contained in the Act on the Tax on Civil Law Transactions (the TCLT Law) does not admit its sale to be treated for TCLT purposes as that of an enterprise per se, but only as a collection of objects and property rights, because a sale may only be carried out according to TCLT Law with respect to object or property right.
The parties set in the agreement one price of the enterprise as a whole (i.e. one price covered all property components (objects, property rights). The court confirmed that if just the total value of the transaction
is given in the agreement for the sale of the enterprise, the total value of the enterprise is to be taxed at the single highest rate, i.e. 2% of the market value of the enterprise. The company acted too late when presenting a calculation broken down into objects and property rights, taxable at various rates, only in its application for a declaration of overpayment, which consequently could not be admitted.
The commented decision is consistent with the prevailing line of court rulings. Under Art. 7 sec. 1 of the TCLT Law, the rates of that tax on a sales agreement are
(i) 2% on the value of real property, movables, perpetual usufruct right, ownership title to residential premises, cooperative right to business premises or the following rights arising under the provisions of cooperative law: right to a detached house and right to premises in a small residential house; and (ii) 1% on the value of other property rights.
In practice, it has been assumed that an enterprise must not be found, for the purposes of the provisions of the TCLT Law, to constitute a property right; it is rather a collection of objects and property rights. One should note that, pursuant to Art. 7 sec. 3 item 1 of the
TCLT Law, if the taxpayer failed to separate out the value of the objects or property rights to which various rates apply when carrying out a civil law transaction as a result of which the ownership title was transferred – tax is collected at the highest rate (i.e. 2% in respect of sales agreements). This means that if only the total value of the transaction is given in the agreement for the sale of an enterprise, the entire value of the enterprise is subject to taxation at the highest rate, i.e. 2% of the market value of the enterprise.
In practice, a schedule to the agreement for the sale of an enterprise is executed where the individual components of the enterprise are set out together with the values for the purposes of the transaction. In such a case, it is possible to apply various rates of the TCLT applicable to the particular components. However, if there is no such itemization, the TCLT is due at the highest rate. Hence, entrepreneurs selling enterprises should remember to duly separate out the components of the enterprise and attribute the relevant value to them in the sale agreement itself (and not following the transaction).