Tax & Legal Highlights for Real Estate – February 2019

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Conditions for a Property Owner to Be Considered as Vat Taxpayer Due to Its Sale

In its ruling (ref. I SA/Bd 540/18), the Provincial Administrative Court declared that in order to be considered business activity in the field of property trade, such activity must be defined as professional, while actions carried out as its part must be performed in an organized an continuous fashion. Furthermore, the circumstances allowing to classify a particular activity as acting as a VAT taxpayer need to be investigated individually and with regard to a particular case. Another important criterion is whether the property owner took decisive and active actions in the field of property trade, including means similar to those used by traders, producers or service providers.

Individual Tax Ruling Does Not Eliminate the Risk of a Dispute with the Tax Authorities

In its ruling of January 28, 2019 (ref. II FSK 293/17), the Polish Supreme Administrative Court (NSA) confirmed, that in the case of a purchase of a property, neither capital ties nor events taking place after the purchase, which would confirm the fact of a purchase of an organized part of an enterprise, are to be taken into account. The case under consideration was of a company that, prior to purchasing a property, applied for an individual ruling with respect to the proper qualification of the transaction. The tax authority ruled that the planned deal was not a purchase of an organized part of an enterprise and should be subject to VAT taxation and not the tax on civil law transactions. However, during a tax audit, the tax office determined that the company did not present a legitimate factual standing in its application, as it did not include, among others, capital ties with the seller, lease agreements and employees taken over; therefore, the individual tax ruling failed to provide any protection to the company. The NSA rejected the stance of the tax authorities and deemed undermining the previously issued individual ruling to be unacceptable. Moreover, it referred to the explanations issued by the Ministry of Finance in December 2018 regarding the VAT taxation of real estate transactions, where an analogous situation was quoted, which classified such a transaction as an asset deal and not a disposal of an organized part of an enterprise.

Only Structural Parts of a Solar Power Plant Are Subject to Taxation

According to the ruling of the Supreme Administrative Court (NSA) of December 18, 2018 (ref. no. II FSK 1275/18), only structural parts of a wind farm are subject to the real estate tax (RET). The case in question concerned a company involved in the construction of a photovoltaic farm, according to which the RET obligation applied only to the structural parts of the farm, namely the poles tied to the land. The Mayor and the Provincial Administrative Court in Szczecin questioned the company’s position and ruled that the entire farm, including other parts, constitute a separate entity from the technical and functional point of view and, as a non-building structure, should be subject to the RET. However, according to the NSA, the catalogue of non-building structures provided for in the Construction Law is a closed list and it should be used to properly classify the asset as a non-building structure. The catalogue does not include other parts of the solar power plant, namely photovoltaic panels or cells; therefore, there is no obligation to pay RET in this regard.

Retained Profits and TCLT When Changing an Entity’s Legal Form

In an individual tax ruling of the Head of the National Revenue Information Service (KIS) of October 30, 2018 (ref. no.: 0111-KDIB2-2.4014.157.2018.1.MM) it was stated that the moment when a general partnership is transformed into a limited partnership, the profits earned in the previous years that have not been paid to the partners and transferred to the transformed partnership shall be subject to tax on civil law transactions. Explaining its position, the authority stated that the assets of the general partnership will exceed the value of contribution to the limited partnership (the partnership subject to transformation) and will include the part of assets that were not subject to TCLT before. Basing on this assumption, the authority determined that TCLT will have to be charged on profits that have not been paid to partners and will comprise the property of the transformed company.

Cost of Interest on the Loan Taken to Pay Dividend Is Not a Tax-Deductible Expense

In its ruling of October 19, 2019, the Supreme Administrative Court (NSA) (ref. no. II FSK 1806/16) dismissed a cassation appeal of a taxpayer who asked the authority to positively respond to the possibility of including the costs of interest on a loan to pay dividend in tax-deductible expenses. In the statement of reasons, the NSA declared that the purpose of a loan was not to pursue economic goals, but to fulfill the company’s obligation towards its shareholders; therefore, the expense cannot be classified as a tax-deductible cost.

There Is No Escape from Paying CIT on Damages

In its ruling of January 8, 2019 (ref. no. II FSK 3612/16), the Supreme Administrative Court (NSA) declared that the equivalent of expenses on rebuilding a burnt factory is subject to taxation. The ruling regards a case where a company whose assets (building, machines, plants) was destroyed in a fire. According to the company, the reimbursement of expenses on rebuilding the company in the form of damages should not be subject to CIT taxation. The Director of the Tax Chamber in Poznań disagreed with the taxpayer, stating that the damages received was not the reimbursement of expenses incurred, but the execution of the insurance contract. The NSA confirmed the position of the tax authority, adding that the received insurance payout was a result of damage that occurred prior to expenses on rebuilding the company destroyed by the fire. Furthermore, the taxpayer has the possibility to include destroyed fixed assets in tax-deductible expenses (in the form of depreciation and loss resulting from their liquidation).

The Ministry of Finance Explains How to Calculate the Pln 2 Million Limit in Case of a Shifted Fiscal Year

According to the explanations by the Ministry of Finance, the newly introduced rules on the withholding tax and the related limit of payments apply to all payments made from January 1, 2019. This also applies to taxpayers whose fiscal year periods differ from the calendar year periods. For instance, if the tax remitter’s fiscal year started in 2018 and will finish in February 2019, the payment limit is PLN 2 million for payments made from January 1, 2019 to February 28, 2019. In the next fiscal year, the payment limit will be calculated anew.

Polish “Exit Tax” Regulations Are Inconsistent with the EU Ones

According to Prof. Adam Mariański, Ph.D, the Polish regulations on exit tax were implemented in a much broader scope than provided for in the ATAD directive. Under the EU regulations, this tax can apply only to CIT taxpayers. The Polish lawmakers extended the scope of taxation to natural persons as well. This solution is contradictory to both the idea behind the ATAD directive and the EU law principles. According to the expert, it is only a matter of time for the Polish regulations to become the subject of a CJEU judgement confirming that it is incompatible with the EU law.

Activities of Employees of a Foreign Entity Can Be Considered a Permanent Establishment

Pursuant to the ruling of the Provincial Administrative Court dated September 28, 2018, (ref. no. III SA/Wa 3593/17), a permanent establishment can be recognized also in the case when the foreign company hires persons licensed to negotiate and conclude agreements with clients in Poland, where their duties constitute a “decision making façade.” Such employees are considered to be the foreign taxpayer’s tied agents; therefore, their activities should be considered a permanent establishment. The ruling was issued in respect of a complaint against the individual tax ruling by the Head of the National Revenue Information Service (KIS) regarding the provisions of the CIT Act and the Polish-German double taxation avoidance agreement.

No Minimum Income Tax for Owners of Stadiums

According to the interpretation of the Head of the National Revenue Information Service (KIS), the so-called CIT minimum does not apply to the football stadium rental revenue. When assessing whether a particular fixed asset is subject to minimum income taxation, it is important whether the asset is qualified in the fixed asset register as a building or a structure. Pursuant to the CIT act, this tax applies to fixed assets that are buildings. According to the Construction Law, a football stadium does not meet the definition of a building, and has been classified as a structure in the fixed asset register of the entity applying for the individual tax ruling. Thus, revenue from that source should not be subject to this tax.

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