Contract of shared construction is a frequent tool for developers. In this article we want to highlight the tax risks for the apartment construction contract and the apartment construction contract.
Tax Compliance specialists in this area highlight the following problems:
1. The risk of changes in the methodology of calculating the builder's savings.
In practice, there is a question of calculating the financial result for the object as a whole or by apartments. The tax authority in this matter proceeds from apartment-by-apartment accounting, as compared to the second option, the VAT base is formed earlier and there is a threat of penalties and fines.
There are the following positions of the Supreme Court and the Ministry of Finance:
The review of judicial practice of the Supreme Court of the RF № 2 (2021): the builder who builds an apartment house under the contract of participation in shared construction, has the right to determine the tax base for corporate income tax, based on the final value of the financial result of the use of funds shareholders for their intended purpose, which is calculated as a whole for the object of construction.
Letter of the Federal Tax Service of Russia of 06.04.2021 № БВ-4-7/4549@: The financial result of the developer from the use of funds of shareholders for intended purpose is determined as a whole for the object of construction (apartment house), but not for each individual contract of participation construction.
To summarize, the taxpayer must determine the financial result to reduce the likelihood of additional charges and penalties for the object of construction as a whole.
2. The risk of transferring apartments under the CDU:
In recent cases accompanied by tax compliance, the tax authority insisted on qualifying the transfer of facilities under the CDU as VAT sales. As a consequence, the taxpayer was imputed VAT revenue.
The position of the Ministry of Finance is as follows:
- Builder's services under the equity participation agreement are not subject to VAT (subparagraph 23.1 paragraph 3 of Article 149 of the Tax Code). Also, non-residential premises that are transferred to shareholders for personal use and not for business are not taxed. These are, for example: car spaces, apartments in a house under construction (letters of the Ministry of Finance from 23.06.2020 № 03-07-11/54254, from 27.11.2018 № 03-07-07/85568, from 01.03.2018 № 03-07-07/12971);
- Builder's services rendered under CDA contracts to organizations and individuals concluded in accordance with 214-FZ, under which the objects of shared construction are apartments for accommodation of individuals within a hotel complex are exempt from VAT, if such objects, not being production facilities, are acquired for personal (individual or family) use (Letter of the Russian Ministry of Finance from 22.06.2022 № 03-07-07/59478);
The judicial practice is as follows:
Resolution of the Twelfth Arbitration Court of Appeal of 02.04.2021 in case № A12-25048/2020.
"The actual use of non-residential premises by owners in the future cannot change the order of application of the developer's exemption from VAT in determining the tax base because at the time of the contract of participation in shared construction the developer does not know how in the future the owner will use the premises transferred to him under the contract".
The ruling of the Arbitration Court of the North Caucasus District on 09.09.2020 in case number A53-23398/2019.
Since the apartment building (the building as a whole) is an object of non-production (residential) purposes regardless of the presence of non-residential premises in it under the contracts of participation in share participation construction, concluded with individuals, the company has not created and transferred the premises of production purpose.
Consequently, the taxpayer should take into account that the tax authority continues to qualify the transfer of facilities under the CDA as a sale, due to which the tax risks of additional accruals remain significant. There are significant arguments in favor of the taxpayer, but in order to apply them there must be no signs of artificiality in the taxpayer's activities.