VAT on Margin: Imputation of the Cost Price during a Transfer by a Land Developer

The VAT on margin is a specific regime often applied by property dealers and land developers when reselling building land.
A recent decision by the Council of State has provided an important clarification: land transferred to the municipality for a symbolic euro can be included in the cost price of the sold lots, under certain conditions.

This decision has a direct impact on the determination of the VAT taxable base and thus on the profitability of land development operations.

Reminder: how Does VAT on Margin Work?

Article 268 of the General Tax Code (CGI) provides that, upon the resale of building land or a property purchased in a single transaction, VAT is calculated on the margin, namely:

VAT = (Selling price of the lot – Cost price of the lot) x 20%

This regime applies only when:

• the resold property did not give rise to VAT deduction rights upon its acquisition;

• and it is the same property (or a property not substantially modified).

It contrasts with the normal VAT regime on the total price, which is significantly more burdensome.

The Principle of Cost Price Imputation per Lot

When the land developer acquires a global plot of land (often a large plot to be divided), they must impute the global purchase price to each lot at the time of resale.

The Council of State reiterates that each lot sale constitutes a distinct operation, but that the seller remains free to choose their imputation method, provided it is justifiable and verifiable.

Thus, the cost price of each lot corresponds to a proportionate share of the global purchase price of the original land.

The Council of State’s Decision: Accounting for Gratuitous Transfers to the Municipality

In its decision (CE, 9th and 10th combined chambers, 2025), the Council of State confirmed that:

The land developer may include in the global cost price the plots transferred gratuitously or for a symbolic euro to the municipality, if these transfers are a condition of the land development operation and if these plots were part of the initially acquired land.

In other words, if the gratuitous transfer:

• conditions the realization of the project (e.g., creation of roads, green spaces, public utilities);

• and the transferred land is an integral part of the initial landholding,

then the cost of these plots can be integrated into the cost price of the entire operation, distributed among the remaining lots.

Concrete Examples

Let’s consider the case of a land developer who purchased a 10,000 m² plot for €1,000,000 to create 10 building plots.

1,000 m² must be transferred gratuitously to the municipality to create the road network.

• Without this decision, the cost of these 1,000 m² would be fiscally lost, artificially reducing the margin per lot.

• With this jurisprudence, the land developer can distribute the value of this transferred land (€100,000) among the remaining 9 sold lots.

This therefore reduces the taxable margin on each lot, and decreases the VAT due — without violating the law.

A Favorable Development for Professionals

This position of the Council of State is favorable to land developers and property dealers, as it recognizes the economic reality of the operation.
Indeed, the gratuitous transfer to the municipality is a mandatory charge, directly linked to the project’s development.

In practice, this approach allows for:

• avoiding excessive taxation;

• harmonizing the VAT on margin calculation base with the economic structure of the land development;

• and securing operations in case of a tax audit.

Precautions to Take

The Council of State, however, reiterated that:

• the taxpayer must be able to justify the imputation method adopted (plans, deeds of transfer, global cost, detailed calculations, etc.);

• the gratuitous transfer must be required by the municipality (development condition imposed in the subdivision permit);

• and the transferred plots must have been included in the initial acquisition deed.

If these conditions are not met, the tax authorities could reject the imputation and adjust the VAT base.