KPC Herning: Selling Land with a Building Slated for Demolition Is Not Automatically 'Building Land'
The supply of land on which a fully operational building stands at the time of supply cannot be classified as a taxable supply of 'building land' merely because the parties intend the building to be wholly or partly demolished to make room for a new one. Where the seller is not involved in the demolition, it is an exempt supply of land with a building.
Facts
Danish developer KPC bought a plot with a working warehouse from the Port of Odense, with social housing for young people to be built there; part of the warehouse was to be demolished later by the buyer or a subsequent acquirer. The Danish administration taxed the transactions as supplies of building land, pointing to the intended demolition. The dispute reached the CJEU on the interpretation of the exemption for supplies of buildings and land.
Legal assessment
The Court reiterated that classification follows the objective nature of the transaction at the time of supply, not primarily the parties' intentions. The warehouse was fully operational at sale and the seller played no part in its demolition; demolition arranged by the buyer after acquisition is an independent operation that cannot be merged with the sale into a single 'building land' supply. The Court distinguished Don Bosco, where the seller had undertaken the demolition and in substance delivered land ready for construction. Economic reality cannot serve to reclassify a clearly defined supply merely because of the acquirer's future plans.
Practical impact
Practically: you set the VAT regime of a property sale through the contract structure. For the exemption (Sec. 56 of the Czech VAT Act), hand over the building functional and leave demolition entirely to the buyer — no commitment, order or payment for it on your side; state expressly that the object of sale is land with the building as-is. If you instead want a taxable supply (typically to preserve deductions), contract the demolition as part of your delivery. For an exempt sale, calculate the adjustment of previously claimed deductions on the property in advance (10-year window) — it often decides which variant pays off.