The new Civil Code effective since 2014 has introduced a new rule under which fixed machinery can become part of a structure. This leaves most machinery and structure owners rather cold, but only until the property is to be sold.
A real estate sale transaction gives rise to a tax obligation to pay real estate acquisition tax. One of the bases on which the tax is calculated is the ‘administrative value’ determined by an expert opinion. In practice, this means that the entire selling process (particularly that involving commercial real estate) is joined by an expert who values the property in accordance with methods laid down in the Property Valuation Act (No. 151/1997, as amended). This methodological tool defining valuation procedures contains a rather hidden sentence stating that “The price of the technological equipment defining the purpose of use of a structure… shall be added to the price of the structure.”
We have met with an interpretation by the tax authority to the effect that an expert opinion on the valuation of real estate to be sold should include all technologies located in the property. This includes machinery such as overhead cranes, paint spraying room equipment as well as solitary machinery or entire production lines installed in the structure, even in cases where such technologies are owned by the tenant and are, therefore, not for sale. A situation like these may be resolved by entering a reservation of ownership in the Land Register. This option is laid down in section 508 of the Civil Code (Act No. 89/2012 Sb.). A reservation of ownership is a note entered in a public list (in the Land Register in this case) clearly declaring that the ownership of technology and the real estate in which the technology is installed are different.
However, a legal interpretation of these issues is more complicated. Unlike the opinion of the tax authority, the legal interpretation refers to the chronological order in which individual facts occur. This interpretation points out that no collective loss of the title to machinery and passage to the owners of the structures could occur on 1 January 2014 (the effective date of the Civil Code).
It is currently not clear which of the views outlined above will prevail or whether a new interpretation will come up. Nevertheless, from a practical perspective, we recommend avoiding such situations and, making use of the measures set out in section 508 of the Civil Code, especially in the sale of leased properties in which the tenant keeps their technological equipment, and entering a reservation of ownership in the Land Register. This will be a clear signal for the expert and hence the tax authority that the machinery and technological equipment located in the real estate being sold is not the object of the sale and, therefore, will not affect the real estate acquisition tax base.