Judgment of the SAC: Money in attorney's custody and the time of VAT payment

On 20 August 2021, the Supreme Administrative Court (hereinafter the “SAC”) issued judgment file no. 2 Afs 274/2020 - 20, in which it dealt with the question of whether the sale of immovable property gives rise to the seller's obligation to declare VAT on the consideration received already on the date when the buyer deposits the purchase price into the account of the trustee (a third party).

In the judgment, the SAC does not identify with the opinion of the tax administrator that by depositing an amount corresponding to the purchase price of the real estate to the account of a third party, the seller accepted remuneration for a taxable transaction in the sense of article 21 paragraph 1 first sentence of the VAT Act. As the SAC further states: “if article 21 paragraph 1 first sentence of the VAT Act speaks about “accepting” remuneration, it is understood to mean the taxpayer, i.e. provider of taxable performance (the complainant) accepting the remuneration, and not a third party (escrow agent or trustee), which is not a provider of a taxable transaction.” According to the SAC, remuneration for the taxable transaction is received at the time, when the object of custody is actually paid to the seller as the selling price. The seller therefore is not obliged to declare VAT as on the date of receipt of the deposited amount for safekeeping by a third party.

Although the conclusions of the above-mentioned judgment of the SAC seem quite clear, they do not fully identify with the conclusions of the Coordinating Committee Chamber of Tax Consultants of CR 179/23.05.07 - Non-monetary forms of remuneration for transactions for the purposes of VAT (p. 49) from 5 April 2007. As is stated in item 6.3. of this article: “If the parties agree that the receivable will be fulfilled by depositing money in a lawyer's or notary's custody, then depositing the finance in custody < -em>until a certain condition is met may be considered payment for the purposes of article 21 of the VAT Act</ -em>, because while the finance is not in the account of the seller at the time of payment into custody, this finance has already been removed from the account of the buyer and is only temporarily in the safekeeping at a lawyer or notary in favour of (on the account of) the seller.” According to the article, then, depositing money in a lawyer's or notary's custody already represents payment for the seller under some conditions.

It is not clear, if the above-mentioned conclusions of the Coordinating Committee continue to apply in the light of the new judgment of the SAC, or we actually suppose that in the current situation, both the conclusions of the Coordinating Committee and the given interpretation of the SAC should apply and, due to these two being in mutual conflict, it is to a certain extent up to the payer to decide, how he will proceed. Therefore, if you use the service of a lawyer's or notary's custody (third party) in your activities, we recommend taking into account the conclusions of the new judgment of the SAC as well as the older article of the Coordinating Committee and to reflect on the contractual conditions of safekeeping.