The case of housing from 2001 to 2020, which ends with the disputed obligation to pay real estate transfer tax

Procedure for realization of the right to housing care

The client of CRP Sisak, S.S. approached the CRP office in 2008. He is a returnee in the Republic of Croatia and before the war, he lived in Gornji. During the war, his house was damaged with an assessment of the 4th category of damage. He submitted a request for reconstruction in 2001, and it was granted on March 24, 2003. He requested a relocation of the renovation by allocating him another house equivalent to his property. He was given housing care accommodation in Donji in a house that was bought by the state. He moved into the house in October 2007, although he has a handover record dated 5 February 2007, because the house was not habitable, so he moved in after making the necessary repairs and investments.

On 25 March 2008, the Agency for Transfer of Real Estates wrote to the client and invited him to pay the amount of HRK 128,000.00 in respect of the difference in the value of his property and the value of the house owned by the Republic of Croatia, which he received in exchange.

The client has been waiting for years for the housing issue to be resolved, has invested in a facility assigned to him for temporary use and considers the house a permanent housing solution for his family, but is objectively unable to pay the required price difference.

After years of struggle in attempts to realize housing by replacing an unrenovated family house with a state-owned house, in 2019 the Central State Office for Reconstruction and Housing Care and S.S. entered into an Agreement on the exchange of real estates by which S.S acquired the right to register ownership of the building in Donji, and the Republic of Croatia the right to register on an unrenovated house in Gornji, while the contracting parties have no mutual claims.

In this way CRP client S.S. is provided with housing care.

REAL ESTATE EXCHANGE CONTRACT

Article 68a of the Reconstruction Act (OG 24/96, 54/96, 87/96, 57/00, 38/09, 45/11, 51/13, 98/19) stipulates that the beneficiary of the right to renewal to whom this right has been determined by an executive decision, on the basis of his own request or consent, the Republic of Croatia may give another suitable house or apartment owned by the Republic of Croatia in exchange for an unrenovated family house or apartment.

The exchange contract is concluded between the beneficiary of the reconstruction and the Central State Office for Reconstruction and Housing Care.

The Contract between S.S. and the Central State Office for Reconstruction and Housing Care is concluded on the basis of the above article.

This Contract was confirmed by the State Attorney’s Office as a valid legal transaction between the Republic of Croatia and the party, and thus unequivocally confirmed that there were no mutual claims between the contractors.

APPLICATION OF THE LAW ON REAL ESTATE SALES TAX IN ADMINISTRATIVE PROCEDURE

Tax Administration, Sisak Regional Office on May 15, 2019 determines the tax base in the amount of HRK 87,000.00 for the calculation of real estate transfer tax to the acquirer S.S. based on the real estate exchange contract with the Republic of Croatia, which according to the real estate exchange contract is the value of the real estate owned by the Republic of Croatia.

Considering that in this case it is a matter of acquiring real estate in the procedure of housing care on the basis of the Act on Housing Care in Assisted Areas, and that the provision of Article 155, paragraph 1, item 2 of the Real Estate Sales Tax Act exempts the acquirer from the tax liability if the property is acquired for compensation or other reasons related to the Homeland War, we filed a complaint to the Independent Sector for Second Instance Procedure, Ministry of Finance.

By the decision of March 16, 2020, the appeal is rejected and the tax liability is confirmed with an explanation with a reference to the provision of Art. 4 of the Real Estate Sales Tax Act, noting that this tax is paid in all cases and on the basis of all legal transactions by which the elements of real estate transactions have been realized, including the acquisition on the basis of the Real Estate Exchange Contract.

Furthermore, they state that there is no place for the application of Article 155, paragraph 1, item 2 of the Law on Real Estate Sales Tax, since this is not a gift of real estate, but a replacement.

CRP believes that in this article, the very title that reads “Tax exemption for inheritance, gift and other acquisition without compensation” is unquestionable. Thus, the Exchange Contract is to be considered as other type of acquisition free of charge under which S.S. received the property free of charge for damages arising from the Homeland War.

The latter is crucial to the case of S.S.

PROCEEDINGS BEFORE THE COURT

CRP filed a lawsuit to the relevant Administrative Court in Zagreb against the second instance decision of the Ministry of Finance with a claim for annulment of the decision determining the tax liability because it is a procedure of acquiring real estate based on the provisions of the Reconstruction Act, but also in the alternative, being no less important, the Act on Housing Care in Assisted Areas.

Applicable act, the provision of Art. 48 repeals the provisions of the regulations on real estate transfer tax and prescribes: “… real estate transfer tax is not paid by persons who acquire real estate owned by the Republic of Croatia for the purpose of housing care…“

We also object to the incorrectly established factual situation regarding the amount of the tax base because the Real Estate Exchange Contract contains the provision “the contracting parties have no mutual claims”, and the contract in question was confirmed by the Municipal State Attorney’s Office of the Republic of Croatia, as the tax liability never arose.

In conclusion, CRP believes that in this case the Act on Reconstruction and the Act on Housing Care in Assisted Areas, Article 48, paragraph 1, should be applied, and it stipulates that, exceptionally from the provisions of the regulations on real estate transfer tax, real estate transfer tax is not paid by persons acquiring real estate owned by the Republic of Croatia for the purpose of housing if they reside at the address of the real estate they acquire.

There is no doubt that the Real Estate Exchange Contract entered into by S.S. with the Republic of Croatia arises from the reconstruction or housing care where both institutes provide for tax exemption.

Therefore, in connection with this case, CRP is waiting for the decision of the Administrative Court in Zagreb and hope for the adoption of the claim, as CRP started this administrative dispute precisely because already having two similar cases, in which the clients were exempted from paying real estate transfer tax in the second-instance procedure regarding the appeal.

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