Czech Republic: Tax treatment of unfinished real estate sale (Supreme Administrative Court decision)
Only costs directly related to the land and real property disposal were recognized as tax-deductible
The Supreme Administrative Court (SAC) addressed the tax deductibility of costs related to a development project upon the sale of unfinished real property. The tax administrator did not recognize most of the costs as tax-relevant—a decision upheld by the SAC.
A development company had purchased land and incurred various costs, including demolition, legal services, loan interest, and penalties, for a new project. An affiliated company was responsible for obtaining necessary permits and documentation. The rights to the project were transferred to the developer in 2016 upon issuance of a zoning permit.
In 2015, the developer sold the project to an external investor and claimed as tax-deductible all expenses related to the disposal of the project. The tax administrator rejected most of these expenses, citing insufficient links to the generated income. The SAC confirmed that the developer sold only the land and real property in 2015, as they did not own the project rights until 2016. Therefore, only costs directly related to the land and real property disposal were recognized as tax-deductible for 2015.
Read an August 2024 report prepared by the KPMG member firm in the Czech Republic