Constitutional court's decision on determination of market value of real estate
On 23 March, the Slovenian Constitutional Court, by repealing Article 8 of the Real Estate Transfer Tax Act, decided that the generalized market value cannot be used as a manner of determining the market value of real estate for the purposes of taxing the transaction. It remains to be seen in practice what approach the tax authorities will now take in assessing whether the purchase price is market price and determining the tax basis.
The repealed provision of the Real Estate Transfer Tax Act states that in cases where the purchase price of the real estate is at least 20% lower than the generalized market value, the tax basis for real estate transfer tax is 80% of the determined generalized market value. The provision was intended to combat fictitious sale and purchase agreements where the value for tax purposes was agreed at prices lower than market.
Consequently to the Court's decision, the tax authorities will now only be able to review the purchase prices based on the provision of Tax Procedure Act which are not as clear. The latter will most likely result in longer tax assessment procedures and increase in appeals in relation to the tax authorities’' assessment of the market price - at least until the parliament passes the framework legislation on the new system of determining the generalized market value which will be able to survive the challenges in front of the Constitutional court.