In a recent decision, the Lyon Administrative Court of Appeal refused to apply the 15% fixed-rate works charge to the calculation of capital gains on built-up property.
In accordance with Article 150 VB-II-4° of the General Tax Code, the cost of building, rebuilding, extending or improving a property is added to the purchase price: either, under certain conditions, for the actual amount; or on a flat-rate basis, for an amount of 15% of the purchase price, provided that the taxpayer sells the property more than five years after its acquisition. In the latter case, the tax authorities specify that this is an option left to the discretion of the vendor. If the taxpayer opts for this flat rate, he or she can increase the purchase price by 15% without having to prove that the work has actually been carried out. It should also be noted that there is no need to check whether the expenditure incurred for the work has already had an impact on the personal income tax base.
In a ruling dated 5 June 2018, the Lyon Administrative Court of Appeal recently denied a SCI vendor the benefit of the 15% flat-rate tax. In this case, on 18 May 2012 the said company sold a plot of land on which a chalet had been built for a price of €11,549,304. The SCI had acquired the chalet in January 1992 for €381,123 and then an adjoining plot of land in May 2002 for €85,981. As the holding period condition had been met, the transferring company applied a flat-rate capital gains tax of 15% to the purchase price of the chalet, in accordance with Article 150 VB-II-4° of the General Tax Code.
According to the tax authorities
The tax authorities ruled out the application of the lump sum, basing their reasoning on a number of points:
- the chalet was to be demolished in favour of a new building;
- in the deed of sale dated 18 May 2012, the vendor SCI stated that it had obtained permission to demolish the existing building and a building permit issued on 29 December 2010, which it had requested be transferred to the new buyer, who would carry out the demolition work;
- In the deed of sale, the company stated that it had not carried out any work on the property that required the issue of a building permit or prior declaration;
- Lastly, the deed of sale stated that the SCI had not carried out any work on the property sold that required it to take out building damage insurance in the last ten years, and that the chalet was awaiting connection to the collective rainwater network.
ACCORDING TO THE TAXPAYER
Relying on Article L. 80 A of the Livre des Procédures Fiscales, the SCI, for its part, interpreted Article 150 VB-II-4° of the CGI by relying on the terms of the BOI-RFPI-PVI-20-10-20 n°390 administrative doctrine and Instruction 8-M-05, according to which "when the condition relating to the length of ownership is met, the seller can benefit from the 15% flat-rate tax without having to demonstrate the reality of the work, the amount of work actually carried out and the impossibility of providing supporting documents".
The decision
However, the Administrative Court of Appeal considered that the said terms did not contain any interpretation of tax law that differed from that applied in the case in point. According to the Court, the SCI was not entitled to rely on the guarantee provided for in Article L. 80 A of the LPF. It therefore concluded that the taxpayer who was a partner in the SCI was not entitled, for the purposes of calculating the capital gain realised on the sale of a building plot on which a building intended for demolition had been built, to request that the purchase price of the chalet be increased by 15% in respect of work that he himself had declared he had not carried out.
Our comments
The Administrative Court of Appeal ruled in favour of the tax authorities, which had set a limit on the principle of the 15% mark-up, which should no longer apply in a similar case. This ruling raises the question of whether it is necessary to be discreet about the purchaser's motivations in notarised deeds of sale, even if it means the notary clarifying the purchaser's consent in a private document.
