In June, Coordination Committee contribution No. 636/25.02.26, Application of VAT to Activities under a Planning Agreement, was published, along with the conclusions of the General Financial Directorate (GFD) regarding the matter (for more details, see CONTENTS). The contribution focused primarily on the position of municipalities, city districts, or regions. A key takeaway from the GFD's conclusions is that when fulfilling obligations arising from planning agreements, municipalities, city districts, or regions do not act in the capacity of public authorities whose activities are exempt from VAT pursuant to Section 5(4) of the VAT Act. On the contrary, standard activities of municipalities, city districts, or regions arising from planning agreements—such as providing steps necessary for the issuance of zoning and building permits, or assuming commitments to cooperate and obligations to refrain from certain actions—are subject to VAT, provided that there is a direct link between the supply provided in this manner and the agreed consideration (counter-value) from the developer. Furthermore, according to the GFD, each agreement must be assessed individually based on its actual content.
It follows from this interpretation by the GFD that if a municipality, city district, or region undertakes to provide the aforementioned supplies within a planning agreement—receiving agreed consideration in monetary or non-monetary form from the developer in exchange—they are carrying out a taxable supply, or a supply that is counted toward the turnover threshold for mandatory VAT payer registration.
These conclusions raise a number of questions that may disrupt established practices and for which finding a correct and VAT-compliant, unambiguous answer can be very difficult. These questions can become increasingly complex the more comprehensive the mutual obligations of the parties in the planning agreements are. In addition to defining potential taxable supplies, they may also encompass issues such as determining the tax base (on both sides) or exercising the right to a VAT deduction (again, on both sides). Indeed, for this very reason, discussions and mutual communication between representatives of the GFD, the Union of Towns and Municipalities, and the Chamber of Tax Advisors on this topic are ongoing, though the adoption of any final conclusions will certainly take some time. For the time being, we recommend exercising sufficient caution when entering into any planning agreements and ideally consulting on potential impacts and risks in advance. Please do not hesitate to contact us regarding this matter.
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