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The tax side of real estate. Periodic newsletter for the Real Estate sector.
A spin-off involving the division between the main and additional business activity, accompanied by the lease of a property to an affiliated entity, is not artificial in nature and has a specific economic purpose, according to the ruling issued on November 04, 2021 by the Supreme Administrative Court (case files no. 573/19).
The company’s object of business was the transport of goods, vehicle repairs, and the sale of automotive parts. In relation to the implementation of a new business strategy, the company decided to separate its main business, i.e. transport services, from other operations, including vehicle repairs and lease of real estate to the parent company. The tax authority considered such actions to be artificial in nature and aimed exclusively at securing a tax advantage, i.e. reduction of revenues by the costs of the lease rent. The Supreme Administrative Court decided, however, that there is, in fact, no tax advantage because the lease rent will act as the cost for the parent company, and as the revenue for the newly-created company, meaning that there is no valid ground to refuse to issue an advance tax ruling.
VAT obligation emerges upon execution of a report covering the public tender for the sale of real property, according to the advance tax ruling issued on November 22, 2021 by the President of the National Fiscal Information (0111-KDIB3 1.4012.831.2021.1.AB).
The company had doubts as to when the VAT obligation emerges in relation to the payment of a bid security towards the real estate price. The company believed that such obligation is created on the real estate supply date, i.e. upon execution of the sale agreement in a notarial deed. The tax authority held a different view.
“In the case at hand, the tax obligation arising from the bid security towards the sale of real estate emerges when the purchaser of the property is selected as part of the procurement procedure, i.e. when a public tender report (discussed in §10 section 1 of the Regulation) is signed. It needs to be noted that when the winning bid is selected, the bid security is credited towards the sale price, i.e. it becomes an advance towards the future supply, which entails a tax obligation in line with article 19a section 8 of the Act. Consequently, when the property acquirer is selected and the public tender report is executed, the established bid security creates a tax obligation with respect to such public procurement procedure.” – concluded the President of the National Fiscal Information.
Irrespective of whether the Ministry of Finance publishes information about taxpayers whose revenues exceed EUR 50 million, any entity that goes beyond that threshold is obliged to publish its tax strategy until December 31, according to the advance tax ruling issued on November 17, 2021 by the President of the National Fiscal Information (0111-KDIB1-1.4010.363.2021.2.NL).
The company had doubts as to the new regulations concerning the obligation to publish tax strategies, especially a situation in which the revenue is over EUR 50 million but the company is not listed by the Ministry of Finance. For the President of the National Fiscal Information, it is perfectly clear that the revenues form the deciding factor, which means that the company is obliged to announce its tax strategy.
“In relation to the obligation to prepare and publish an announcement on the tax strategy for fiscal year 2020 until December 31, 2021, it needs to be noted that if the applicant generated revenues in 2020 in excess of EUR 50 million (converted into PLN on the basis of the average exchange rate published by the National Bank of Poland on the final business day of the calendar year preceding the one in which taxpayers’ individual data is published), then – regardless of whether the applicant’s data is published in the Public Information Bulletin by the minister responsible for public finance or not – the applicant shall be obliged to publish the information referred to in article 27c of the CIT Act at its website, and to communicate such information to the competent tax office until the end of the twelfth month after the end of the fiscal year, i.e. until December 31, 2021. For the purposes of the 2020 tax strategy, only the revenues generated in excess of EUR 50 million in 2020 will be relevant.”
“We fully endorse the ruling issued by the Supreme Administrative Court – in light of the unequivocal provisions of the PIT Act, there should be no doubt whatsoever that the amount of the contested VAT return can increase the initial value of a fixed asset,” commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.
The real property’s initial value may be increased by VAT whose deduction has been questioned by the tax authority, according to the ruling issued on November 28, 2021 by the Supreme Administrative Court (case files no. II FSK 219/19).
The enterprise acquired several buildings and structures, and then applied for a VAT return in relation to that acquisition. Tax authorities challenged the right to deduct VAT, arguing that the properties had been purchased in order to secure a tax advantage. Tax authorities and the Provincial Administrative Court in Gdańsk denied the possibility to include the amount in question in the initial value of fixed assets. However, the Supreme Administrative Court decided otherwise, noting that in such case, the taxpayer had never even held the right to deduct VAT, and consequently, the entire sale price plus VAT (which can be subject to depreciation) should be regarded as the acquisition price and the initial value of the buildings / structures.
The remuneration of the financial department employees and members of management board can be included in the initial value of a fixed asset, as long it is related directly to an investment project, and can be unambiguously determined and separated to the extent related to such project, according to the advance tax ruling issued by the President of the National Fiscal Information on November 12, 2021 (0111-KDIB2-1.4010.386.2021.1.AR).
The company constructs and leases residential apartments and commercial premises. It has a finance department and a management board, whose employees/members perform both general tasks and ones related specifically to a given real estate project. Tax authorities believed that the remuneration of employees, to the extent related directly to a fixed asset, should increase its initial value, rather than be recorded as costs on an ongoing basis.
“The deciding factor for the categorization of a specific expense as a cost of fixed asset generation is the possibility to assign such expense to a specific investment project, i.e. the generation of the fixed asset. (…) The costs of remuneration of the finance department employees involved in tasks related directly to the project should be divided into investment costs (which increase the initial value of fixed assets) and operating costs (in a given period). (…) Among the costs of generation of a fixed asset, the applicant is / will be able to include the aforesaid remuneration of management board members who supervise the investment project, together with other fees linked to such remuneration, i.e. social insurance contributions and payments towards employee capital plans, as long as variable remuneration only concerns the management board members’ actions that have a direct impact on fixed asset generation and the successful completion of the investment project, and the applicant is able to separate the relevant part of the remuneration.”
Real estate tax about to rise in Warsaw – the City Council has adopted new rates for 2022
The biggest rise will be recorded by the real estate tax rate related to business operations, from PLN 24.84 in 2021 to PLN 25.74 in 2022 (up by PLN 0.90). The rate applicable to residential units will increase, as well, from PLN 0.85 in 2021 to PLN 0.89 in 2022. Here, the rise is similar to the previous years (in 2019, the rate was PLN 0.79, while in 2020, it reached PLN 0.81).
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