Classification of technology firmly affixed to a building in accordance with the judgment of the Supreme Administrative Court
8.11.2010Company: Amcham
In its judgement 5 Afs 3/2010 – 144 of 17 September 2010, the Supreme Administrative Court dealt with the issue of classifying technology firmly affixed to a building for income tax purposes.
This judgment involved a filtration and air-conditioning unit, a fire prevention device and filters which had been classified by the taxpayer as part of a production hall which he then depreciated as depreciation group 5. Moreover, the taxpayer drew on the tax relief arising from investment incentives and, therefore, the administrator contested this approach, objecting that the duty to minimise the tax base had been breached as, in his opinion, the said equipment comprised separate movable parts falling under depreciation groups with shorter depreciation periods. Besides, the tax administrator supported his opinion with the text of Instruction D-300 on Section 26 and on Appendix No. 1 to the Income Tax Act.
In said judgment, the Supreme Administrative Court agreed with the taxpayer and confirmed that in the said case the technology is such that is an indispensable part of the building, making one functional whole with the building. If, it said, the technology was removed, the whole building would be impaired and could not be used for the purpose for which it was approved.
From the income tax perspective, to assess what is and what is not a part of a building, the Supreme Administrative Court believes it is necessary to examine this from the function and purpose point of view, i.e. whether or not removing a particular part will cause impairment of the functioning and purpose of the building. The Supreme Administrative Court therefore was of the opinion that equipment or anything that a building requires from the perspective of the Building Act for its functioning and particular purpose shall usually be considered as a part of the building for the purposes of the Income Tax Act.
The Supreme Administrative Court also considered as unreasonable the objection of the tax administrator to apply the Instruction of the Ministry of Finance D-300 and stated that the part of the Instruction relating to Section 26 did not correspond with the text of the Income Tax Act as it did not distinguish between the different kinds of buildings, depending on their purposes and functions, which places it beyond the scope of the Act.
The question automatically arising from this judgment is obvious – how will the tax administration react to this resolution? We expect that the text of Instruction D-300 will not be changed in a foreseeable future. Nevertheless, this judgment opens a new, more logical view on the classification of technology related to buildings.
For more information concerning the issues above, please do not hesitate to contact us.
Jaromír ZBROJ, Head of TACOMA Tax
Mobile: +420 731 411 268
E-mail: jaromir.zbroj@tacoma.eu
Eva HYHLÍKOVÁ, Senior Consultant of TACOMA Tax
Mobile: +420 739 343 393
E-mail: eva.hyhlikova@tacoma.eu
www.tacoma.eu
