Levente Bihari

If a property price includes VAT, the question often arises as to whether the gross or the net purchase price should be indicated as the market value of the property for stamp duty purposes. Even if it hasn’t been officially announced yet, it does seem we’re getting closer to an answer – and the good news is, it looks like the net price will win out.

As you may be aware, when you acquire real estate in Hungary, you generally have to pay stamp duty of 4% on the market value of the property. And anyone who’s bought property here will also be familiar with the “B400 form”: that’s the form on which the buyer must specify the market value of the property to the tax authority. At the end of the day, it’s NAV (the Hungarian tax authority) that determines the market value – when entering the amount on the B400 form, the property buyer is only stating what he thinks the correct value is. The tax authority can then accept this amount or decide on a different figure, as it sees fit.

Gross or net?

But what should we state as the market value on the B400 form? Naturally, it is reasonable to base this on the purchase price, as this is the price at which the property changed hands, and so this is the market price. However, if the purchase price includes VAT, it’s not that obvious whether we should state the price net of VAT or the gross price including VAT as the market value. And that’s a pretty important question. Even if just 5% VAT is charged on the purchased property, it’s significant, but if the VAT is 27%, the stamp-duty difference can be very substantial indeed.

The Hungarian supreme court (the Curia) ruled on the matter back in 2012, but its ruling left much to interpretation. Indeed, the supreme court stated that “the concept and definition of market value must be independent of both the VAT content of the purchase price and the manner in which the tax is paid”. What exactly this means in practice is unclear, but the decision tends to favour the use of the net price as the base for calculating the stamp duty, which is obviously to the taxpayer’s advantage.

The practice of the tax authority

Even though the decision of the supreme court dates back more than ten years, no clear position has since developed in the tax authority’s practice as to whether the gross or the net value should be taken as the base. Recent experience, however, suggests that if the taxpayer states the net price on the B400 form, the chances are that the tax authority will ultimately accept it. Recently, we’ve seen several cases where, regardless of whether the buyer of the property was a company (which can deduct the VAT and therefore, for it, the net amount of the purchase price represents the true cost), or a private individual (who cannot deduct VAT and therefore, in their case, the total cost is the amount including VAT), the tax authority agreed that the stamp duty should be paid on the net price of the property.

However, it’s worth noting that NAV does not necessarily and automatically confer this benefit. That is, if the taxpayer enters the net amount on the B400 return, NAV will still tend to ask the taxpayer to clarify the discrepancy between the figures in the sales contract and those on the B400 form. While an inexperienced taxpayer may beat a hasty retreat at this point and change the purchase price from the net to the gross figure, an “educated” buyer will argue for the net amount – and in this latter case, NAV will typically bow to the arguments and agree to charge stamp duty on the net price.