A real-life case from our practice illustrates how an incorrect tax treatment of what is, for us, a routine tax and accounting transaction can become very costly and conversely, how the timely engagement of a professional tax and accounting advisor can save you both money and time. In this instance, a quality audit served as a key tool in identifying the error and ultimately securing the refund of overpaid tax. However, with timely involvement of a professional advisor, all additional costs and risks arising from the incorrect treatment could have been completely avoided.

Imagine this…

A company has purchased a valuable commercial property. All documents have been duly signed, you have paid the real estate transfer tax as determined by the Tax Administration’s decision, and you believe the transaction has been successfully completed. Then, months later, the audit team performing the statutory audit informs you that the tax was paid unnecessarily, because you had received an invoice from the seller applying the reverse charge mechanism, meaning the transaction was already taxed in that way, even though this was inadvertently omitted in the purchase agreement.

This is exactly what happened to our client. Fortunately, the story has a positive ending thanks to the proactive approach of the Kulić & Sperk team. But the outcome could have been very different…

How and why did the unnecessary real estate transfer tax payment occur?

During the statutory audit, our team noticed something unusual in the purchase documentation for the “new” property. Through detailed analysis, we determined:

• The purchase agreement did not clearly define the tax treatment,
• The seller issued an invoice applying the reverse charge mechanism in accordance with Article 75, Paragraph 3, Point (c) of the VAT Act,
• The Tax Administration issued a decision on the payment of real estate transfer tax based on the purchase agreement,
• The client duly recorded the invoice with reverse charge and included it in the VAT return,
• At the same time, the client also paid the real estate transfer tax in accordance with the Tax Administration’s decision.

The result?

An unnecessarily paid real estate transfer tax, which had a significant impact on the client’s financial position.

According to Croatian tax regulations, for properties considered “new,” there is an option to choose between taxation under VAT or real estate transfer tax – but not both!

Although an audit is primarily focused on financial statements and compliance with standards, this case demonstrated how, when you have experienced auditors who take a “broader view,” an audit can be a valuable tool for identifying omissions and risks. However, timely involvement and consultation with a professional advisor can prevent such risks before they become a problem.

Given that several months had passed since the transaction and all formal deadlines for appeal had already expired, the situation was far from simple. Our advisory team was immediately engaged and, in cooperation with the client, undertook the following steps:

1. Prepared a detailed professional argumentation to support the client’s formal objection
2. Proposed steps that would be beneficial to take
3. Compiled the complete supporting documentation for the refund request and participated in communication with the Tax Administration.

A surprising turn of events

Despite the expired deadlines and the initial rejection of the objection, persistence and expertise combined with close collaboration with the client paid off. The Tax Administration ultimately issued a positive decision, granting the client a refund of the unduly paid real estate transfer tax amounting to several hundred thousand euros.

Important Note: This case is an exception rather than the rule. In this instance, the Tax Administration responded constructively after several meetings and a detailed review of the argumentation, which is not always the case.

For complex transactions such as property purchases, timely consultation with an expert can prevent costly mistakes. While audit procedures are typically limited to standard practices, our approach includes a comprehensive review and is always aimed at delivering added value to the client.

What can you learn from this case?

The main takeaway is clear:

Engage a professional advisor in time.

For all new and non-standard transactions, involve an expert already during the preparation of contracts and documentation to ensure regulatory compliance, reliability, and security throughout the entire process.

A proactive approach is always safer and more cost-effective than reacting to mistakes after the fact. And keep in mind you can only react to the errors you actually detect. In many cases, entrepreneurs are not even aware that an error has occurred, as was the case here. Don’t wait until a mistake becomes expensive. Get in touch with us today and find out how we can protect you in time.

Frequently Asked Questions

Who is a tax and accounting advisor, and why are they important?

A tax and accounting advisor is a professional who helps you interpret complex tax laws, optimize your tax obligations, and ensure proper financial management. Their role is crucial for staying compliant with often complex tax regulations and for making financially sound business decisions.

Are tax consultations part of a standard audit?

Detailed tax consultations are generally not part of the scope of a standard audit, as audit procedures are primarily focused on verifying compliance with accounting standards and relevant legal requirements. At Kulić & Sperk, we consistently apply all legal provisions and, through our approach, often go beyond the basic requirements, providing clients with added value through practical insights and proactive communication.

How to optimize taxation in property transactions?

The greatest risk usually arises with “new properties” that may meet the conditions for optional taxation. It is crucial to correctly define the tax treatment in the purchase agreement and to carefully verify the status of the property as well as the tax position of both the buyer and the seller.

What to do if the formal deadlines for appeal have expired 

First, be transparent about the omission. The case we describe here is an exception. Professionally managed meetings with the Tax Administration, supported by expert argumentation, can sometimes lead to positive outcomes but the best solution is prevention through timely consultation and tax optimization.

Learn more about how the Kulić & Sperk team can help you. Contact us at:

savjetovanje@kulic-sperk.hr

revizija@kulic-sperk.hr

Confidentiality notice: The examples presented in this article are based on real cases from our practice but have been adapted and anonymized to protect client confidentiality. All information is provided solely for educational purposes and to illustrate the solutions offered by Kulić & Sperk, in strict compliance with professional and legal confidentiality standards. No information contained herein constitutes a specific recommendation without further analysis of your particular business situation.