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Category: Tax alert

Get the RET right – the tax side of real estate | April – May 2022

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On May 12, 2022, the Minister of Health issued a regulation calling off the state of epidemic in Poland, effective as of May 16, 2022. As a result, the exemption from tax on income from buildings ceases to apply as of May 31, 2022 (pursuant to article 38ha of the CIT Act). What this means for CIT taxpayers is the return – starting from June 01, 2022 – of the obligation to calculate the tax on income from buildings for each month and to pay it until the twentieth day of the month following the one for which it is due (the deadline for payment covering June 2022 is July 20, 2022).

In light of the legal status that will come into effect as of January 01, 2023, the costs of leasing a real property from a shareholder will constitute the so-called “disguised dividend,” according to the advance tax ruling issued on April 29, 2022 by the President of the National Fiscal Information (0111-KDIB1-1.4010.94.2022.2.JD).

The case (future event) concerns a company that leases retail and office space from one of its shareholders. The properties were purchased by the shareholder from unrelated parties, and the cost of the lease will not be dependent upon the Company’s profit (or lack thereof) and its value. The President of the National Fiscal Information decided that the new definition of a “disguised dividend” would apply here because the property had been acquired before the Company was established, unless the total sum of the costs incurred by the Company in a financial year, which constitute the disguised dividend, is lower than the gross profit (as defined in accounting regulations) generated in the financial year in which these costs are included in the Company’s financial result.

As a result, the lease-related costs will not be regarded as tax-deductible expenses under the new regulations.

Financial settlements between the parties to a joint venture are not subject to VAT, according to the advance tax ruling issued on May 04, 2022 by the President of the National Fiscal Information (0111-KDIB3- 1.4012.84.2022.1.IK).

The case concerns a transfer of funds resulting from the distribution of profits / coverage of losses between the parties to a joint venture. The parties assume that these activities are technical in nature and do not involve the provision of services or supply of goods. The actions performed as part of the joint venture are primarily aimed at achieving a common goal rather than providing services. The tax authority concluded that in this situation, financial settlements between the parties cannot be treated as the performance of services or supply of goods, and, consequently, they do not constitute activities that are subject to VAT.

“It can be concluded that payments due to the stakeholders are dependent upon the profits generated from the joint venture. Consequently, cash flows resulting from such agreement will not be regarded as payments for the fulfillment of an obligation. This means that such distribution constitutes a technical and accounting action only. There will be no transfer of actual economic control over the goods and no actual performance of services between the parties. It is impossible to identify any financial benefits that would be obtained by each of the parties in relation to the aforesaid settlements. As a result, JV-related settlements between the parties are not subject to VAT,” – concluded the President of the National Fiscal Information.

A lessor that receives a refund of the property tax and perpetual usufruct fee from the lessee should include them together with the rent in a VAT invoice and apply the VAT rate for the lease (the so-called “comprehensive service”), according to the advance tax ruling issued on May 04, 2022 by the President of the National Fiscal Information (0113-KDIPT1 1.4012.184.2022.2.MSU).

The case concerns a taxpayer that leases a warehouse/workshop with office and staff premises. In addition to the rent, the lessee also pays an amount corresponding to the value of the real estate tax and the perpetual usufruct fee. The President of the National Fiscal Information has noted that the perpetual usufruct fee and the real estate tax are directly connected with the lease services, meaning that they are VAT-taxable in the same way as the lease rent.

“Regardless of whether the amount of the real estate tax and the perpetual usufruct fee, returned to the lessor by the lessee, has been included in the rent and constitutes its component, or whether it is separated from the rent, it is always charged to the lessor (…) Consequently, the amounts of the perpetual usufruct fee and the real estate tax constitute the price-generating element of the property lease and are directly connected therewith, meaning that they are subject to VAT in accordance with the rules applicable to the lease services,” – noted the President of the National Fiscal Information.

A VAT invoice cannot be amended/revised in relation to the planned waiver of debt, according to the advance tax ruling issued on May 06, 2022 by the President of the National Fiscal Information (0111-KDIB3-1.4012.234.2022.2.KO).

The case concerns a company which, due to the ongoing armed conflict in Ukraine, is considering the waiver of debt of its Ukrainian partners (at the creditor’s choice and with the debtor’s consent). The President of the National Fiscal Information believes that in this case, the company is not entitled to issue an amended invoice since such waiver cannot be equated with a discount or price reduction.

“The agreement with business partners only concerns the waiver of debt and cannot be regarded as the same as a discount or a price reduction,” – noted the President of the National Fiscal Information.

Receipt of cash due to a partial reduction of a contribution in a limited partnership is categorized as capital gains and is subject to PIT, according to the ruling issued on April 11, 2022 by the Provincial Administrative Court in Gdańsk (case files no. I SA/GD 1700/21).

In the case of a planned return of part of the contribution, resulting from the payment of funds corresponding to the contribution reduction value, PIT-taxable capital gains will emerge for the partner of a limited partnership.

A financial benefit due to the lessor in connection with the relocation, extension, demolition, removal, dismantling or renovation of a building will be subject to VAT, according to the advance tax ruling issued on April 01, 2022 by the President of the National Fiscal Information (0113-KDIPT1 1.4012.80.2022.2.ŻR).

The lessor’s consent for the relocation, reconstruction, demolition, removal, dismantling or renovation of a building/structure in return for a specific fee constitutes a service, as defined in the VAT Act, and is subject to VAT. The tax authority holds that in such case, the payment is, in fact, made for tolerating an act or situation, or for refraining from performing an act. Hence, pursuant to article 106b section 1 of the VAT Act, the lessor is/will be obliged to issue invoices covering this activity.

Need any assistance? Got any questions? Call or e-mail us.

Małgorzata Wąsowska
Certified Tax Advisor / Partner / Head of Tax
+48 691 477 047
malgorzata.wasowska@actlegal-bsww.com

Jakub Świetlicki vel Węgorek
Certified Tax Advisor / Senior Associate
+48 505 703 768
jakub.swietlicki@actlegal-bsww.com

Szymon Kokot
Certified Tax Advisor / Trainee Attorney-at-law / Associate
+48 691 557 507
szymon.kokot@actlegal-bsww.com

Katarzyna Adydan
Certified Tax Advisor / Senior Associate
+48 665 667 110
katarzyna.adydan@actlegal-bsww.com


Get the RET

Get the RET right. The tax side of real estate.

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Periodic newsletter for the Real Estate sector

It is possible to categorize uncollectible receivables from any type of guarantee issued by a bank (rather than exclusively from loans) as tax-deductible expenses, according to the ruling issued on March 09, 2022 by the Supreme Administrative Court (case files no. II FSK 1553/19).

The Supreme Administrative Court noted that bad debts written off in relation to such guarantees can be recognized as tax-deductible expenses in case the guarantees referred to in article 16 section 1 item 25 c) of the CIT Act are provided not only in connection with a loan, but also for any other purpose. Based on a linguistic interpretation of that provision, the phrase “repayment of loans” refers only to “sureties” and does not apply to “guarantees.”

Repayment of debts secured with a mortgage on a real property directly to the account of the mortgage creditor is regarded as the seller’s income, according to the ruling issued on March 09, 2022 by the Provincial Administrative Court in Gdańsk (case files no. ISA/GD 1062/21).

We cannot rely on the general concept of revenue (i.e. a definite gain) in a case involving disposal for a specific fee because – as specified in article 14 section 1 of the CIT Act, which forms a special provision in relation to article 12 section 1 of the CIT Act and defines the concept of revenue from disposal of items and proprietary rights for a specific fee, the revenue from such disposal corresponds to the value of the item (proprietary right), as expressed by the price specified in the agreement, regardless of the recipient. Consequently, the repayment of mortgage-secured debt to the mortgage creditor is regarded as a gain for the seller of the property.

Loss on the sale of a claim covering a “security deposit” which has not been returned by the contracting party, formerly included in the revenues of the transformed company, may be regarded as tax-deductible expenses of the newly-established private limited liability company, according to the ruling issued on March 08, 2022 by the Supreme Administrative Court (case files no. II FSK 1543/19).

The case concerned the transformation of a sole proprietorship into a private limited liability company. The newly-established company will be entitled to obtain the return of the amount of the security deposit which was retained by the taxpayer’s business partner in order to secure the proper performance of construction works.

The legal predecessor of the private limited liability company recognized the claim as its receivables, meaning that the future event meets the criteria specified in article 16 section 1 item 39 of the CIT Act, according to which tax-deductible expenses do not include “losses on the disposal of claims/receivables for a specific fee, including in the manner specified in article 12 section 1 item 7, except for the claims/receivables or parts thereof which were previously recognized as revenue due – up to the amount formerly recognized as revenue due.” Given the above, a loss resulting from the sale of the aforesaid claims/receivables may be considered as a tax-deductible expense of a sole-shareholder private limited liability company.

Revenue in the form of a free-of-charge benefit emerges upon execution of a suretyship agreement, rather than upon its performance, according to the ruling issued on March 09, 2022 by the Supreme Administrative Court (case files no. II FSK 1615/19).

The company believed that revenues only arise upon performance of a suretyship agreement. However, according to the court, revenues in the form of a free-of-charge benefit emerge earlier, i.e. upon execution of such agreement. Moreover, the court did not share the company’s position that it is not possible to establish the value of the benefit in question, and that there are no regulations which could be used to determine that value. Pursuant to the CIT Act, “the value of in-kind benefits, incl. unpaid ones, is determined on the basis of market prices used for performance of services or provision of items/rights of the same type and category, taking into account their condition, degree of wear, and the time/place.” In the case at hand, the amount and conditions of the loan are clear, which means that there should be no difficulty in establishing the value of remuneration for the surety with respect to a specific borrower and the loan obtained by that borrower.

It is possible to amend the VAT amount incorrectly included in an invoice that allegedly covers non-existent operations if the tax authority has ultimately denied the invoice recipient’s right to deduct VAT, according to the verbal statement of reasons to the ruling issued on March 09, 2022 by the Provincial Administrative Court in Łódź.

The Provincial Administrative Court has decided that if the tax authority denied the recipient of a “fake invoice” the right to deduct input VAT resulting from such invoice, the risk of loss of tax revenues related to the deduction ceased to exist. Consequently, the tax authority cannot refuse the option to amend VAT that was incorrectly specified in the invoice – this goes beyond the prevention of the tax revenue losses because there is no longer any possibility of such losses.

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    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Senior Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    Get the RET right. The tax side of real estate | December 2021

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    The tax side of real estate. Periodic newsletter for the Real Estate sector.

    The basic designation of land in the Local Spatial Development Plan is decisive for determining the nature of the land as a building area – such conclusions arise from the judgment of the Supreme Administrative Court dated 10 November 2021. (case file no: I FSK 575/18).

    The case concerned a request for tax interpretation in which the Applicant inquired about VAT taxation of three undeveloped plots of land. According to the LSDP, two of the plots are earmarked for non-public green areas and the third one for a multi-family residential development. The SAC stated that in order for a real property to be recognized as a building area, the primary designation of land in the LSDP is decisive. The additional designation is supplementary and admissible, but it does not modify the basic designation in the LSDP.

    “In this respect, it should be noted that the tax authorities – contrary to the SAC- hold that in a situation where the LSDP sets out the permissible designation for development, such plots of land meet the definition of a building area and cannot benefit from the exemption.” – commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

    Pursuant to the general interpretation issued by the Minister of Finance on 15 December 2021 (no  DD5.8203.2.2021) regarding the application of the income tax exemption to income generated from participation in the profits of general and limited partnerships which are taxpayers of income tax, the so-called “dividend exemption” is available with respect to general and limited partnerships to the profits generated by these companies from the moment they became CIT taxpayers. The exemption does not apply to entities which are general partners because the regulations in this respect provide for a different mechanism eliminating the “double” taxation of such a partner’s income.

    In accordance with the general interpretation dated 9 December 2021 issued by the Minister of Finance (no. DCT2.8203.2.2021) concerning the concept of a controlled transaction of a homogeneous nature, in the case of the so-called indirect transactions with domestic entities, the obligation to prepare transfer pricing documentation arises only with respect to the cost side of the transaction. This is justified by the fact that only in respect of cost transactions, where a receivable is paid, it is possible to determine the actual owner of such receivable. The general interpretation also clarified the previously expressed practical issues of homogeneity of transactions, comparability criteria and transfer pricing verification methods.

    “The general interpretation has dispelled frequent doubts arising in practice as to which entities are required to verify the beneficial owner. It is to be welcomed that the scope has been clarified and narrowed with respect to entities paying out receivables.” – commented Szymon Kokot, Tax Advisor at act BSWW legal & tax.

    The remuneration paid to cover the costs related to adapting hotels to the standards of a given brand is an indirect tax deductible cost and should be deducted when incurred, i.e. at the time when the amount of payment is entered into the books, and in the case of its reimbursement, the tax deductible cost is adjusted in the period when the corrective invoice is received – position presented in the tax interpretation of 17 December 2021 (no. 0111-KDIB1-2.4010.558.2021.1.SK).

    The case concerns three companies, where the Applicant (providing hotel management services) undertook to support two interested parties (lessees of the hotel building) with respect to complying with the standards set by the hotel chain and adjusting the building to the requirements of the hotel brand. If the events specified in the contracts, e.g. termination of the contract, occurred – the interested parties agreed to return the support received.

    “The amount of Support Payment is undoubtedly related to the Applicant’s solicitation of potential Interested Parties in order for them to carry out hotel business, and thus is related to the Applicant’s earning of revenue in terms of providing hotel management services to owners or lessees under the concluded HMAs. Therefore, the Support Payment paid by the Company to the Interested Parties may constitute a tax expense. This cost, being related in a general way to the Applicant’s business activities, is an indirect tax deductible cost. It cannot be linked directly to the revenues obtained from the above-mentioned agreements during their duration,” indicated the Director of KIS (National Tax Information Office).

    Performing the function of the president of the management board of a company by a person delegated to do so by the parent company and holding shares in the capital structure of the group does not generate a gratuitous benefit on the part of the company – individual interpretation of December 24, 2021 (no. 0111-KDIB1-2.4010.628.2021.1.BD).

    “In addition, when the function of a member of the board is held by a person who at the same time holds shares in the capital structure of the group to which the company in which the person serves on the board of directors belongs, no income from gratuitous benefits arises on the part of this company. This is due to the fact that the shareholder (direct or indirect) may obtain certain benefits from the company in the future, including, among others, dividends,” explained the Director of KIS.

    Unpaid liabilities of a company existing at the time of its deletion from the KRS register do not generate revenue subject to CIT – tax interpretation of 20 December 2021. (no. 0111-KDIB2-1.4010.503.2021.1.MKU).

    The case concerns a company that purchased land for the purpose of conducting a development project. Due to the pandemic, the company decided not to implement the project, sold the land and started the liquidation process. The company had outstanding loans and interest, which had not been paid at the moment of the deletion of the company from the National Court Register. There was also no statute of limitations, cancellation or other extinguishment of these liabilities.

    “It should be emphasized that the basis for recognizing tax income should always be the occurrence of a real gain on the part of the taxpayer. Such a gain on the part of the Applicant will not occur. At the moment of deleting the Applicant from the register of entrepreneurs of the National Court Register, the Company will cease to exist. Therefore, it will be impossible to attribute to it – as an entity no longer existing – any gain, and thus any revenue on this account. To sum up, the value of the Company’s unpaid liabilities (loans and interest) existing as at the date of completion of liquidation and deletion of the Company from the register of entrepreneurs of the National Court Register will not constitute taxable income for the Company,” commented the Director of KIS.

    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Senior Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    NEWSLETTER: The tax side of real estate / October 2021

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    Get the RET right

    The tax side of real estate
    Periodic newsletter for the Real Estate sector

    October 2021

    Companies that rent apartments for the residential purposes of their employees will have to pay VAT, according to the general ruling issued by the Minister of Finance on October 08, 2021 (PT1.8101.1.2021)
    The ruling concerns taxpayers that rent apartments and then sublease them to others for residential purposes.
    “Summing up, services that consist in the lease of residential property (e.g. apartments) or part thereof, rendered by an active VAT payer to an individual/entity (…) that uses such leased property for the purposes of business operations, e.g. by subleasing it to others for residential use, are subject to taxation at the basic VAT rate,” noted the Minister of Finance.

    It is possible to contest the entries made in the land and building register with respect to buildings through reference to evidence and documents on the basis of which such entries are made, according to the ruling issued on October 13, 2021 by the Supreme Administrative Court (case files no. III FSK 225/21)
    The case concerned a company that owns an office building categorized in the land and building register as a commercial development. The company claimed that in fact, the building serves residential and commercial purposes alike. While the Supreme Administrative Court upheld the prior ruling (which was unfavorable for the company) because the site visit had shown that the building did not actually have a residential function, it nonetheless admitted the possibility to challenge the building categorization in the land and building register if it does not reflect the real status.

    An amount paid for the consent for early termination of a lease agreement should be considered as a fee for services, which is subject to VAT, according to the advance tax ruling issued on September 23, 2021 by the President of the National Fiscal Information (0112-KDIL3.4012.264.2021.1.AW)
    The case concerned an agreement between the lessor and tenants, on the basis of which one of the tenants was obliged to pay a specific fee in return for the lessor’s consent for early termination, and for the resulting waiver of further obligations. The tenant retains the right to deduct VAT. The authority did not provide
    a statement of reasons to the ruling.
    An important issue was brought up by taxpayers that submitted the application for the advance tax ruling: “The legal relationship between X and Y (i.e. the parties to the agreement) involves reciprocal services. It needs to be noted that (as indicated above) Y is going to receive the Fee specified in Agreement II for its consent for X’s sanctionless termination of the Lease Agreement. Consequently, there is a direct and tight link between Y’s consent and the Fee due to Y for that consent.”
    “The ruling confirms the existing practice of tax authorities which assume that payment of a fee for early termination of an agreement should be categorized as services, as long as such fee is intrinsically related to a specific action taken by the other party,” commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

    Real estate tax has to be paid on the entire company building that is included in the register of fixed assets, even if, in fact, only part thereof is used for business operations, according to the rulings issued on October 07, 2021 by the Supreme Administrative Court (case files no. III FSK 121/21 and III FSK 122/21)
    The owner of a wholesale facility was only using part of its building for the purposes of business operations. Nevertheless, after an occupancy permit was obtained, the entire building was listed in the company’s register of fixed assets. The Supreme Administrative Court decided that the actual use of the building was irrelevant because what matters is the fact that it is included in the register of fixed assets. As a result, it is necessary to pay real estate tax on the entire building, at the rate applicable to buildings intended for business activity.

    The value (introduced in 2018) of the excess of financing costs that are not subject to the so-called thin capitalization (article 15c of the CIT Act) is determined as the total sum of PLN 3 million and 30% of taxable EBITDA, according to the ruling issued on October 20, 2021 by the Supreme Administrative Court (case files no. II FSK 390/19)
    As of now, tax authorities tend to assume that the value of the excess of financing costs, which is excluded from the thin capitalization regulations, should be set at PLN 3 million or 30% of EBITDA. On the other hand, administrative courts predominantly decide that such value should correspond to PLN 3 million and 30% of EBITDA.
    “I hope that the favorable (from the taxpayers’ perspective) ruling of the Supreme Administrative Court will be reflected in the approach taken by tax authorities. It needs to be noted, however, that starting from 2022, the value of the excess of financing costs which are not covered by thin capitalization will be set at the higher of PLN 3 million or 30% of EBITDA,” commented Michał Brzozowicz, Tax Advisor at act BSWW legal & tax.

    The municipality’s return of expropriated real estate should not be regarded as a supply of goods and is not subject to VAT because such return is made as part of reinstatement of the pre-expropriation status, according to the ruling issued on October 26, 2021 by the Supreme Administrative Court (case files no. I FSK 119/18)
    The return of real property should not be aligned with the supply of goods, as defined in the VAT Act. Consequently, such return is not VAT-taxable. The amount paid by heirs as part of property restitution is not categorized as compensation.

    The application of PIT exemption (in case of property disposal) as a result of expenses incurred for one’s own residential purposes – categorization of certain costs related to renovation and adaption (fit-out) – the general ruling issued by the Minister of Finance on October 13, 2021 (DD2.8202.4.2020)
    The Minister of Finance has recently issued a general ruling based on which expenses incurred to purchase and install (among others) household appliances, ceiling/wall lighting, kitchen hoods, custom-made furniture and kitchen furniture fit within the definition of costs intended for residential purposes, and can thus be included in the calculation of the tax exemption base.
    “Given their functionality and intended purpose, this equipment should be regarded as an intrinsic part of a residential building (unit). In order for a building (unit) to serve residential premises, it needs to be adjusted to satisfy the basic life needs. It has to be highlighted here that the equipment aimed at fulfilling those needs should not include the so-called “small household appliances,” such as coffee makers, toasters, microwaves, etc. These are just accessories, rather than indispensable elements without which a kitchen would lose its functionality,” concluded the Minister of Finance.
    “In my opinion, this general ruling is a clear sign for taxpayers that will soon be obliged to settle their housing tax relief. Importantly, the Minister of Finance focuses on the social aspects of basic residential purposes (as shown by the coffee maker example), rather than the connection between a specific cost and the real property,” commented Szymon Kokot, Tax Advisor at act BSWW legal & tax.

    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Michał Brzozowicz
    Tax Advisor / Attorney-at-law / Senior Associate
    +48 665 667 110
    michal.brzozowicz@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Senior Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    NEWSLETTER: The tax side of real estate / September 2021

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    Get the RET right

    The tax side of real estate
    Periodic newsletter for the Real Estate sector

    September 2021

    Services related to long-term lease should be covered by the 8% VAT rate, according to the so-called “binding rate information” issued on September 20, 2021 by the President of the National Fiscal Information (0112-KDSL2-1.440.103.2021.2.MK).
    The case concerned the VAT rate applicable to the accommodation of students, workers and others.
    “According to PWN [Polish Scientific Publishers] Polish dictionary, to ‘accommodate’ means ‘to provide temporary lodging for someone.’ These services are covered by code no. 55 in PKWiU [Polish Classification of Goods and Services] – Accommodation-related services. The VAT Act sets a preferential VAT rate of 8% for such services – article 41 section 2, in conjunction with article 146aa section 1 item 2 and section 1a of the Act, and item 47 of Appendix 3 to the Act,” noted the President of the National Fiscal Information.
    “Once again the President of the National Fiscal Information confirmed the possibility to apply the 8% VAT rate for services related to the private rented sector,” commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

    Contractual penalties paid for rescission of lease agreements might sometimes be regarded as tax-deductible costs, according to the advance tax ruling issued on August 31, 2021 by the President of the National Fiscal Information (0111-KDIB1-3.4010.498.2017.6.MBD).
    The case concerned a company which concluded (following a thorough analysis) that its operations performed in leased premises might be unprofitable, i.e. may result in losses. The President of the National Fiscal Information confirmed that is such case, the payment of contractual penalties is related to maintaining the source of income, and that article 16 section 11 item 22 of the CIT Act does not apply to those penalties.
    “(…) Given the fact that contractual penalties under lease agreements match the definition of tax-deductible costs discussed in article 15 section 1 of the CIT Act, and do not meet the criteria applicable to the penalties discussed in article 16 section 1 item 22 of the CIT Act, the Applicant will be entitled to categorize them as tax-deductible costs,” concluded the President of the National Fiscal Information.

    In order to apply the housing tax relief before December 31, 2018, it was enough to sign a development agreement and use the funds for residential purposes within 2 years of the date of sale of the previous property, according to the general ruling issued by the Minister of Finance on September 02, 2021 (DD2.8202.1.2021).
    “The right to apply the relief is independent from the final acquisition of the ownership right within the deadline specified in article 21 section 1 item 131 of the CIT Act, effective until December 31, 2018,” noted the Minister of Finance.
    “This general ruling puts an end to the doubts as to whether the final transfer of the ownership right to real estate until the statutory deadline was required in order to tap into the housing tax relief. The ruling confirms the well-established judicial practice in this respect,” commented Jakub Świetlicki vel Węgorek, Tax Advisor at act BSWW legal & tax.

    While selling a real property, a natural person who does not conduct business operations may act as a VAT payer as a result of the powers of attorney and conditions precedent, according to the advance tax ruling issued by the President of the National Fiscal Information on August 31, 2021 (no. 0111-KDIB1-3.4010.498.2017.6.MBD).
    The case concerned a natural person who intended to sell a property and authorized the purchaser to obtain the decisions and permits which constituted the conditions precedent for execution of the final agreement, to obtain the utilities connection conditions, to get a construction permit, and to subdivide the property.
    “It needs to be noted that the actions which have been taken by the Applicant preclude the sale of land lot no. 1 as part of management of private assets. Hence, the aforesaid sale will be deemed to form part of business operations, as discussed in article 15 section 2 of the Act, and the Applicant will be acting as a VAT payer, as referred to in article 15 section 1 of the Act,” noted the President of the National Fiscal Information.

    Establishment of a free-of-charge transmission easement to the benefit of a company shall be regarded as such company’s revenue from free-of-charge services under article 12 section 1 item 2 of the CIT Act, according to the advance tax ruling issued on September 22, 2021 by the President of the National Fiscal Information (0111-KDWB.4010.29.2021.1.ES).
    The case concerned a company which builds heat networks and enters into connection agreements with new recipients. In order for such agreements to be executed, it is necessary to establish transmission easements. The heating system and equipment serve the purpose of supplying heat to recipients, i.e. owners and holders of perpetual usufruct right to properties. Thanks to the easement, the company has the right to enter the land in case of any need to perform inspections, repairs or maintenance. As a result, the company can operate, and the recipients can be supplied with heat, in an uninterrupted manner.
    “Taking the above into consideration, it has to be concluded that establishment of a free-of-charge transmission easement to the benefit of the company, consisting in the right of access to the property and use thereof, generates revenues arising from free-of-charge services under article 12 section 1 item 2 of the CIT Act,” decided the President of the National Fiscal Information.

    Demolition of the acquired buildings in order to implement another project will not entail an obligation to revise input VAT, according to the advance tax ruling issued on September 08, 2021 by the President of the National Fiscal Information (0114-KDIP1-1.4012.362.2021.2.JO).
    The case concerned a taxpayer that intends to acquire developed land in order to implement a new project promptly after demolition of the existing developments. The President of the National Fiscal Information fully shared the taxpayer’s opinion that “there is no obligation to revise input VAT due to demolition of the building or structures; this applies to the VAT amount included in the invoice received from the seller, covering the sale of the assets, deducted in relation to the acquisition thereof.”

    A “structure,” as defined in construction law regulations, may be regarded as a building under the Local Taxes and Fees Act for the purposes of the property tax if it meets the criteria included in the “building” definition provided in that Act, and its distinctive element is the usable area, according to the resolution adopted by the Supreme Administrative Court on September 29, 2021 (case files no. III FPS 1/21).

    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Michał Brzozowicz
    Tax Advisor / Attorney-at-law / Senior Associate
    +48 665 667 110
    michal.brzozowicz@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Senior Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    NEWSLETTER: The tax side of real estate / August 2021

    Posted on by adminTS

    Get the RET right

    The tax side of real estate
    Periodic newsletter for the Real Estate sector

    August 2021

    The lease of hotel/commercial premises for residential purposes will be subject to VAT and non-exempt, according to the advance tax ruling issued on August 05, 2021 by the President of the National Fiscal Information (no. 0112-KDIL1-2.4012.265.2021.2.DS).
    The case concerned the possibility to apply VAT exemption to the lease of hotel/commercial premises for residential purposes (incl. with respect to students and seconded employees).
    “(…) VAT exemption only applies to the lease of residential properties for residential purposes,” concluded the President of the National Fiscal Information.
    “This advance tax ruling is important with respect to the long-term lease of premises in condo hotels and apartment hotels, especially in terms of the right to deduct VAT related to their construction and acquisition,” commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

    The use of the company’s infrastructure by its manager might sometimes result in the lack of the right to deduct VAT, according to the advance tax ruling issued on August 04, 2021 by the President of the National Fiscal Information (no. 0112-KDIL1-1.4012.368.2021.1.AR).
    The case concerned a natural person who was appointed as a member of the management board, while at the same time performing management services under a separate agreement. Given the fact that pursuant to the agreement, the manager is entitled to use the company’s infrastructure, receives a fixed fee and does not bear liability towards third parties, he was unsure whether he was acting a VAT payer.
    “(…) As part of the agreement with the Company, the Manager is / will be bound by the legal relation with the entity that requests the performance of specific tasks as regards the conditions applicable to such performance, the remuneration and the aforesaid entity’s liability towards third parties,” noted the President of the National Fiscal Information, deciding that the manager does not act as a VAT payer, meaning that the services performed by him will not be covered by VAT.

    A company that leases residential premises to students in its own building should pay the property tax in the same way as for premises intended for business operations, according to the Provincial Administrative Court in Gliwice (judgment of July 14, 2021, case files no. I SA/Gl 487/21).
    The Provincial Administrative Court decided that if the Company had not leased premises, it would not have generated income from business operations. Consequently, the lease of premises for residential purposes is not crucial for taxation purposes.
    “In order to apply an adequate property tax rate, it is vital to take into account the company’s object of business, and (consequently) the role that a residential building (student house) plays in generating the results of such operations, i.e. profits. Without using the residential building or its part, the company will be unable to reach its business goals, meaning that in the case at hand, the building is occupied for the purposes of the company’s business operations,” concluded the Provincial Administrative Court in Gliwice.

    The sale of a share in the perpetual usufruct right to a real property is not regarded as business operations as there are no criteria pointing to the taxpayer’s professional activity, according to the Provincial Administrative Court in Warsaw (judgment of February 10, 2021, case files no. III SA/Wa 658/20).
    The taxpayer wanted to sell the right of perpetual usufruct as part of management of private assets. In relation to the executed lease agreement and the actions taken with respect to the property, the authority decided that the taxpayer acts as an entity that is not subject to VAT.
    “Summing up, it needs to be concluded that under the circumstances specified in the case description, the planned sale of a share in the perpetual usufruct right to the Property will not constitute business operations that are subject to VAT as there are no criteria pointing to the Applicant’s activity that would be comparable to the activity of entities whose professional operations cover such transactions. There are no reasons to believe that such actions are professional, regular and organized in nature,” noted the Provincial Administrative Court in Warsaw.
    “This judgment shows that not every single sale of a real property needs to be automatically regarded as made as part of business operations. It is always necessary to analyze a range of circumstances related to the transaction,” commented Michał Brzozowicz, Tax Advisor at act BSWW legal & tax.

    Income from participation in a limited partnership [spółka komandytowa] through an ordinary partnership [spółka jawna], generated by a natural person, is not subject to the so-called solidarity levy, according to the advance tax ruling issued on June 09, 2021 by the President of the National Fiscal Information (no. 0113-KDIPT2-3.4011.308.2021.1.MS).
    The case concerned a natural person who is a partner in an ordinary partnership and generated income from participation in the profits of a limited partnership (through the ordinary partnership). The authority believes that such income is not included in the taxation base for the purposes of the solidarity levy.
    “The Applicant’s income (revenue) from participation in the profits of a limited partnership, generated through the ordinary partnership, will not be taken into account when determining the taxation base related to the solidarity levy,” concluded the President of the National Fiscal Information.

    Independent residential unit owned by the Company are not regarded as buildings, and are this not covered by income tax on revenues from a fixed asset (building) referred to in article 24b section 1 of the CIT Act, according to the advance tax ruling issued on August 26, 2021 by the President of the National Fiscal Information (no. 0111-KDIB1-2.4010.253.2021.1.ANK).
    The case concerned a company that owns independent residential premises that are successively sold to tenants. While selling those apartments, the company establishes a separate ownership title to them.
    “It needs to be noted that if the tax referred to in article 24b of the CIT Act (effective as of January 01, 2019) was supposed to cover independent residential units that are subject to a separate ownership right, the lawmaker would make that clear through an unequivocal legal regulation that refers specifically to residential units categorized as separate property,” concluded the President of the National Fiscal Information.

    In order to decide that a given entity meets the criteria of a “real estate company,” all applicable statutory requirements have to be fulfilled, according to the advance tax ruling issued on August 24, 2021 by the President of the National Fiscal Information (no. 0111-KDIB1-2.4010.235.2021.1.AK).
    The case concerned an SPV that had doubts as to whether the sale of its shares, held by a Dutch tax resident, will mean that it is subject to CIT in Poland even though it does not generate revenues from lease, and the balance sheet value of the property in the preceding year did not exceed PLN 10 million.
    “Given the fact that the Applicant does not meet the criteria for being classified as a ‘real estate company,’ as defined in article 4a item 35 of the CIT Act, it will not be obliged to pay a tax advance in relation to the Transaction under article 26aa section 1 of the CIT Act,” concluded the President of the National Fiscal Information.

    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Michał Brzozowicz
    Tax Advisor / Attorney-at-law / Senior Associate
    +48 665 667 110
    michal.brzozowicz@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    NEWSLETTER: The tax side of real estate / June 2021

    Posted on by adminTS

    Get the RET right

    The tax side of real estate
    Periodic newsletter for the Real Estate sector
    June 2021

    It is the taxpayer’s decision whether a leased property belongs to personal assets or is considered as an asset related to business operations, according to the resolution of the Supreme Administrative Court of May 24, 2021 (case files no. II FPS 1/21).
    The case concerned the allocation of lease income to the right source, and its connection with business operations.
    “Lease income (…) is categorized, without any restrictions, as the income source specified in article 10 section 1 item 6 of the Personal Income Tax Act of July 26, 1991 (Dz. U. / Journal of Laws of 2020, item 1426, as amended), unless it has been added by a natural person to assets related to business operations,” concluded the Supreme Administrative Court.

    The lessee’s approval of the lease conditions suggested by the lessor in return for a specific fee shall be regarded as VAT-taxable services, according to the advance tax ruling issued by the President of the National Fiscal Information on February 03, 2021 (no. 0114-KDIP4-1.4012.661.2020.2.AM).
    The case concerned a lessor that agreed to pay a one-off fee to the lessee as an incentive to enter into the lease agreement.
    “The purpose of the incentive is for the lessee to enter into an agreement with the Applicant, rather than any other entity. The incentive is supposed to encourage the lessee to take a specific action, i.e. to execute the lease agreement. In such case, there is a clear relation between the fee paid by the lessor (Applicant) and the lessee’s action (execution of the lease agreement). Consequently, in the case at hand, there is an element of reciprocity, one that is necessary to determine that the payment is, in fact, made for the services performed,” concluded the President of the National Fiscal Information, at the same time confirming the lessor’s right to deduct VAT from the invoice covering the aforesaid incentive.

    The limitation of tax-deductible costs does not apply to services consisting in the management of investment project preparation and implementation, acquired from affiliated entities, according to the advance tax ruling issued by the President of the National Fiscal Information on June 07, 2021 (no. 0111-KDIB1-2.4010.165.2021.1.ANK).
    The case concerned a company established in order to implement a development project. The company was acquiring investment project preparation /
    implementation management services (among others) from affiliated entities, as defined in the CIT Act. The company had some doubts as to whether the aforesaid costs of services, regarded as the expenses discussed in article 15e section 1 item 1 of the CIT Act, capitalized to the initial value of the building recorded as a fixed asset, minus the depreciation write-offs made after the disclosure of fixed assets, and categorized by the company as tax-deductible, will still be considered as tax-deductible upon the sale of the building, whereas the limitation referred to in article 15e section 1 item 1 of the CIT Act will not apply due to the exception offered by article 15e section 11 item 1 of the CIT Act, regardless of the building’s reclassification from inventory (goods) to fixed assets.
    “(…) Investment project preparation and implementation management services (…) are considered as costs related directly to the production of goods (or performance of services), as referred to in article 15e section 11 item 1 of the Corporate Income Tax Act. (…) Such services are vital for the Project and form its inherent part; i.e. if the Company had not acquired the Services, it would not have been able to develop the Project. Given the above, the Applicant’s opinion that (…) the limitation referred to in article 15e section 1 item 1 of the
    CIT Act will not apply due to the exception offered by article 15e section 11 item 1 of the CIT Act, regardless of the building’s reclassification from inventory (goods) to fixed assets, should be considered as correct,” concluded the President of the National Fiscal Information.

    Loans provided by a VAT payer (irrespective of the frequency and purpose of loans, or the PKD [Polish Classification of Business Activity] code) should be VAT-exempt, meaning that they should also be exempt from the tax on civil-law transactions, according to the advance tax ruling issued by the President of the National Fiscal Information on May 05, 2021 (no. 0111-KDIB3-1.4012.117.2021.3.ASY).
    The case concerned a company that was not conducting lending activities, and such operations were not included in its articles of association or its listing in the National Court Register.
    “If a VAT payer grants loans, such actions shall be regarded as taxable, irrespective of the frequency and purpose of the loans, or the borrower’s status. Any loans provided by a business entity in relation to its operations can be identified and categorized as related to such professional operations, which gives rise to VAT obligations, even if such activities are not covered by the entity’s object of business. (…) Given the fact, however, that such services are included in the list provided in article 43 section 1 item 38 of the VAT Act, the loan granted by the Company (Lender) to the Applicant shall be VAT-exempt,” concluded the President of the National Fiscal Information.

    Rescission fee is subject to VAT, according to the advance tax ruling issued by the President of the National Fiscal Information on June 16, 2021 (no. 0113-KDIPT1-1.4012.205.2021.2.MG).
    The case concerned a taxpayer that entered into a preliminary sale agreement in which the parties undertook to execute a final sale agreement within a specific deadline, save that the seller is entitled to rescind the preliminary agreement (until the date specified therein) in exchange for the return of the advance and payment of a rescission fee.
    “(…) It needs to be noted that acceptance of the Seller’s rescission of the sale agreement for a specific fee should be regarded as services, as defined in article 8 section 1 of the VAT Act, meaning that the rescission fee obtained by the Applicant is subject to VAT under article 5 section 1 item 1 of the VAT Act,” concluded the President of the National Fiscal Information.

    A limited partnership may apply the exemption provided in article 22 section 4 of the CIT Act to profits distributed to its limited partner, generated by the partnership after January 01, 2021, according to the advance tax ruling issued by the President of the National Fiscal Information on June 11, 2021 (no. 0111-KDIB1-1.4010.127.2021.2.EJ).
    The case concerned a limited partnership whose limited partner (acting as such for over two years) is a Polish tax resident and CIT payer, holding the right to at least 10% of the partnership’s profits, save that the limited partner’s share in the profits does not result directly from the proportion between the partner’s capital contribution and the total value of all contributions; instead, it results from the limited partnership agreement.
    „(…) The exemption provided in article 22 section 4 of the CIT Act shall only apply to income resulting from a share in profits of a limited partnership or ordinary partnership [spółka jawna], generated from the day when such partnership became a CIT payer,” concluded the President of the National Fiscal Information.

    Need any assistance? Got any questions? Call or e-mail us

    Małgorzata Wąsowska
    Tax Advisor / Partner / Head of Tax
    +48 691 477 047
    malgorzata.wasowska@actlegal-bsww.com

    Michał Brzozowicz
    Tax Advisor / Attorney-at-law / Senior Associate
    +48 665 667 110
    michal.brzozowicz@actlegal-bsww.com

    Jakub Świetlicki vel Węgorek
    Tax Advisor / Trainee Attorney-at-law / Associate
    +48 505 703 768
    jakub.swietlicki@actlegal-bsww.com

    Szymon Kokot
    Trainee Attorney-at-law / Associate
    +48 691 557 507
    szymon.kokot@actlegal-bsww.com

    Upcoming income tax changes

    Posted on by adminTS

    Below you will find a summary of key income tax-related changes provided in the draft bill of September 15, 2020.

    They are supposed to take effect as early as at the start of 2021.

    1. Limited partnership [PL: spółka komandytowa] with registered office or central administration in Poland will be covered by CIT.

    • In practice, general partners should be subject to single taxation as they should hold the right to deduct a respective part of the tax amount paid by the limited partnership from their income tax.

    • Limited partners, on the other hand, will be subject to double taxation. While the draft bill provides for income tax exemption, it will apply to a limited extent because: (i) only 50% of the income generated by limited partners from their share in the profits of the limited partnership will be covered by such exemption, and no more than PLN 60,000 in a financial year for each limited partnership in which the taxpayer acts as a limited partner; (ii) in order to apply the exemption, it is necessary to fulfill a range of additional obligations (e.g.
    a limited partner cannot serve as a board member of a general partner, be affiliated with
    a shareholder or management board member of the general partner, or hold [whether directly or indirectly] over 5% of shares in the general partner).

    • Pursuant to transitional regulations: (i) the payment of profits generated by limited partnerships before January 01, 2021 should be governed by the regulations that have applied so far; (ii) a general partner will be allowed to reduce the amount of income from
    a limited partnership by a corresponding part of the loss incurred by such partnership.

    • Limited partnerships and ordinary partnerships (which will become CIT payers) whose financial year does not coincide with a calendar year are obliged to close their accounting books as of December 31, 2020.

    2. Ordinary partnership [PL: spółka jawna] with registered office or central administration in Poland will be covered by CIT if the list of partners includes any entity other than a natural person, or the identity of partners is not disclosed to tax authorities.

    3. When shares or all rights and obligations in a so-called “real estate company” (i.e. an entity in which real properties located in Poland or interests in such properties account for at least 50% of the market value of assets within any period of 12 consecutive months) are sold, such company will be obliged to pay income tax on such profits at the 19% rate to the bank account of a competent tax office until the 7th day of the month following the one in which the income was generated, if at least one of the parties to the transaction does not have a registered office or central administration in Poland, or at least one of the parties is a natural person who does not have a place of residence in Poland. In case a “real estate company” does not have sufficient information about the transaction value, tax should be paid at the rate of 19% of the market value of the sold shares or rights and obligation.

    4. There is going to be a new obligation to designate a representative for tax-related purposes; it will apply to “real estate companies” whose registered office / central administration is located outside the EU/EEA (failure to comply with this obligation carries a fine of up to PLN 1 million). Such representative will perform taxpayer’s duties for the company/partnership, and will bear joint-and-several liability with the company/partnership for tax obligations managed by the representative for and on behalf of the company/partnership.

    5. Moreover, “real estate companies” and any taxpayer holding (whether directly or indirectly) shares or rights and obligations in such companies/partnerships are obliged to provide the Head of the National Revenue Administration with information – on an annual basis – about individuals/entities that have (whether directly or indirectly) shares or rights and obligations in such companies/partnerships.

    6. Taxpayers whose income in the preceding year exceeded the amount corresponding to EUR 50 million, “real estate companies” and tax capital groups (regardless of the income value), will be obliged to prepare and publish (at their websites) reports on the implementation of their tax strategy. Such report should include the following elements, among other: 1) a description of the taxpayer’s approach to processes and procedures related to: (i) the performance of tax obligations; (ii) voluntary forms of cooperation with the National Revenue Administration; (iii) the performance of MDR obligations; 2) information about transactions with specific types of entities; 3) information about the submitted applications for advance tax rulings; and 4) binding information about applicable tax rates.

    7. Transfer of liquidation assets to shareholders/partners of the liquidated entity will be CIT-taxable.

    8. The income threshold allowing taxpayers to apply the reduced 9% CIT rate will be increased to the equivalent of EUR 2 million (from EUR 1.2 million).

    9. It will be possible to extend the application of exemption from tax on income from buildings in case the epidemic state related to the spread of SARS-CoV-2 is in effect in Poland after December 31, 2020.

    10. Transfer pricing amendments with respect to tax havens: (i) the documentation threshold for controlled transactions with tax havens will be set at PLN 100,0000; (ii) it will be possible to estimate the value of transactions with an entity from a tax haven, other than controlled transactions, if the beneficial owner has the registered office / central administration in a tax haven; (iii) an obligation to document transactions with entities from tax havens if the beneficial owner has the registered office / central administration there; (iv) an extended range of documentation obligations for transactions with tax havens – providing an economic justification and a description of a benefit test (after it has been conducted).

    11. Transfer pricing amendments with respect to COVID-19: (i) exemption from the obligation to prepare transfer pricing documentation for domestic transactions in case revenues in the financial year in which the state of COVID-19 epidemic (or epidemic threat) applied dropped by at least 50% compared to the previous year (if a given entity could not use the exemption from the obligation to prepare a local file due to the loss it incurred); (ii) lifting the obligation to have an affiliated entity’s statement on adjustments of transfer prices, made during the state of COVID-19 epidemic (or epidemic threat).

    12. New limitations will apply to tax loss carryforward, e.g. in case a taxpayer has taken over another entity or acquired an enterprise or a business unit thereof, which results in: (i) changes (incl. partial ones) to the scope/object of business operations; (ii) a situation in which at least 25% of shares in a taxpayer are held by entities that did not hold such rights as of the end of the year in which the loss was incurred.

    13. The possibility to set individual depreciation rates for used fixed assets for the first time in the register of fixed assets of the taxpayer, only if the purchaser is able to prove that fixed assets were used prior to its acquisition (applicable also for buildings).

    14. The possibility to increase and decrease depreciation rates for fixed assets used for tax-exempt operations will be restricted while such exemption applies.

    15. Flat-rate tax will apply to freelance professions that could not use this form of taxation until now. The tax rates will be reduced.

    16. The so-called “tax abolition relief” will be limited to PLN 1,360.

    If you have any questions, let us know.

    Contact

    Małgorzata Wąsowska
    Certified Tax Advisor / Partner / Head of Tax
    malgorzata.wasowska@actlegal-bsww.com
    +48 22 420 59 59