In a judgment of 22 April 2022, the Supreme Court has concluded that the use of premises used for yoga classes was subject to the payment of tax on the use of the premises. The judgement helps to further define which use of property triggers the payment of municipal commercial property tax. The judgement presumably means that the area of properties not subject to municipal commercial property tax is very limited.
The case concerned FOF Copenhagen, which in September 2015 entered into an agreement to rent premises in a property in Teglgårdsstræde in central Copenhagen. As part of the rent, FOF Copenhagen was required to pay a municipal commercial property tax on the use of the premises if the premises were used for activities subject to the tax on the use of the premises. The premises were mainly used for yoga classes.
FOF Copenhagen was of the opinion that the lease in Teglgårdsstræde was exempt from coverage tax and that the City of Copenhagen should repay the coverage tax for the lease for the years 2016-2018. FOF Copenhagen had previously been found in its favour by both the Copenhagen City Court and The Court of First Instance.
The main issue before the Supreme Court was whether the City of Copenhagen had the authority to levy a municipal commercial property tax cf. section 23A(1) of the Property Tax Act, including whether the premises could be considered to be used for a “similar purpose”. According to the provision, the municipal council may decide that a municipal commercial property tax must be paid on properties used for offices, shops, hotels, factories, workshops and “similar purposes”. The tax is a contribution to the costs incurred by the municipality as a result of the property in question. Previously, the basis for the municipal commercial property tax was the so-called differential value, but is now the land value.
FOF Copenhagen had not used the premises in Teglgårdsstræde for the types of use expressly mentioned in section 23A of the Property Tax Act. The question before the Supreme Court was then whether FOF Copenhagen’s use of the premises fell within the accumulation provision, cf. for a “similar purpose”.
The Supreme Court applied an interpretation of purpose and found that particular emphasis had to be placed on whether the use must generally be assumed to cause the Municipality of Copenhagen to incur expenses of the kind that section 23A of the Property Tax Act is intended to help cover. In the view of the Supreme Court, it was not decisive whether or not the use was a commercial activity. In the Supreme Court’s view, the use of the premises for yoga classes, which were offered to the public, must be assumed to incur expenses of the kind to which the Municipality of Copenhagen was entitled to claim a contribution through the coverage tax in Section 23 A of the Property Tax Act. In the Supreme Court’s view, it was irrelevant that the use of the premises for yoga classes could be characterised as teaching, and it was also irrelevant that the yoga activities were covered by the Public Education Act. On that basis, the Supreme Court concluded that the use of the premises was for a “similar purpose”, whereby a tax on the use of the premises could be levied.
Bachmann/Partners Law Firm advises on property taxation, including municipal commercial property tax Contact Christian Bachmann on tel. +45 30 30 45 21 / chb@bachmann-partners.dk or Peter Hansen on tel. +45 40 32 35 35 / pha@bachmann-partners.dk