Property tax refunds upon the sale of real estate in the Canton of Vaud – what factors should be taken into account, particularly with regard to the liquidation tax provision for real estate funds or investment foundations?

The property tax for legal entities (impôt complémentaire sur les immeubles, or ICI for short) in the Canton of Vaud has the distinctive feature that it is refunded (in full or in part) if transfer tax is levied upon the sale of a property. This rule applies exclusively to the impôt complémentaire sur les immeubles, but not to the other property tax levied in the Canton of Vaud (impôt foncier, or IF for short).

According to Art. 129 LI VD, a refund is contingent upon a transfer of ownership under civil law for which transfer tax has actually been assessed. The refund is limited to the amount of transfer tax actually owed and, furthermore, to a maximum of 15 times the annual ICI property tax (i.e., for a maximum of the last 15 years). If the requirements are met, the refund is issued ex officio, i.e., without a separate application from the taxpayer.

In this context, it is crucial to distinguish this situation from scenarios in which no transfer tax is levied. For example, if a property is transferred as part of a merger, no transfer tax is levied in the Canton of Vaud. Despite the transfer under civil law, one of the prerequisites for the refund of the ICI property tax is thus lacking. If the property is subsequently sold by the acquiring company, a refund of the property tax can only be granted for the years during which the property was owned by the acquiring company. This is excluded for the period during which the property was owned by the transferring company (i.e., prior to the merger). Consequently, the refund is granted only to the extent that the selling party actually paid the property tax (limited to the maximum amounts mentioned above).

In summary, it should be noted that property tax in the Canton of Vaud is only a temporary liability if a transfer tax is actually incurred within 15 years of acquiring the property. Otherwise, it remains due for the relevant years and becomes a permanent liability, with no possibility of a refund.

This potential tax credit can already be taken into account when calculating liquidation taxes and deferred taxes.