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