Małgorzata Dankowska
Małgorzata Dankowska Partner, Tax Advisor

Tax & Legal Highlights for Real Estate – May 2019

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The moment of performance of a construction or construction-assembly service based on VAT

Pursuant to the judgment of the European Court of Justice dated May 2, 2019 (reference number C-224/18), it was considered that if the invoice for services rendered was not issued or issued or delayed, the tax obligation arises 30 days after the acceptance protocol has been signed. In accordance with the judgment of the European Court of Justice of May 2, 2019 (reference number C-224/18), if the invoice for services rendered is not presented or delayed, the tax obligation arises 30 days after the acceptance protocol has been signed. However, the formality of the receipt should be agreed in the concluded contract for construction works between the parties, i.e. the ordering party and the contractor. In addition, contract terms should be established in accordance with the rules of the construction sector. Moreover, the formality of the acceptance of works is to constitute a material finalization of the works performed, i.e. determining the final remuneration for the contractor for the works.

The buyer of the real estate is not entitled to apply for an overpayment due to VAT improperly calculated by the seller

The Supreme Administrative Court, in its judgment of 18 April 2019 (reference number I FSK 596/17), disregarding the taxpayer’s position, dismissed the cassation appeal, stating at the same time that the purchaser of the good did not have the right to claim reimbursement of the overpaid tax. In the judgment was considered the case of the taxpayer, who demanded the return of overpaid VAT after it turned out that the delivery of the property should be exempt from VAT. The VAT tax was added to the price for which the property was purchased. In the opinion of the Supreme Administrative Court, the only entity authorized to apply for the refund of overpaid tax is the taxpayer or tax remitter. However, such a right is not vested in the buyer, because the fact of incurring the economic burden of tax does not result in the acquirer becoming a taxpayer.

Revenues in the tax on revenues from buildings should be calculated taking into account the percentage of rented areas

In addition to the premises of ownership or joint ownership or location of real estate on the territory of Poland, a condition that it allows the building to be taxed on the basis of Article 24b of CIT Act is to give it in whole or in part for use under a rental, lease or other similar agreement – stated the Director of National Fiscal Information in the tax ruling dated April 16, 2019 (ref. no. 0114-KDIP2-1.4010.120.2019.1.JC0114-KDIP2-1.4010.120.2019.1.JC). In view of the above, the revenue for the building income tax should be calculated first by indicating the percentage share of the value in relation to the rented area, and then applying the tax-free amount to the income received calculated in the manner indicated above from all rented areas.

Application of the subject exemption in the scope of investment funds

The Provincial Administrative Court in the judgment (reference number III SA / Wa 3889/17) of December 19, 2019, determined that a specialized alternative open fund created under the provisions of German investment law and being an institution for collective investment has the right to benefit from the subject exemption of the CIT Act. In the case in question, the Provincial Administrative Court revoked the tax interpretation of the tax authority, admitting the taxpayer’s right. The Provincial Administrative Court did not share the position presented by the tax authority, which indicated that the German investment fund cannot be considered as both an entity having legal personality and an entity dealing only with collective placement of cash in securities, money market instruments and other property rights. Meanwhile, in the Provincial Administrative Court ‚s opinion, the tax authority did not correctly interpret the provisions of the CIT Act, stating that even if there is no indication that the fund should be considered an entity having legal personality, these conditions cannot be attributed to the wording of the provision allowing exemption from income tax of funds (collective investment institutions) established in another EU Member State. In addition, the fund pursues its activity by investing funds in shares of Polish companies with limited liability, which also meets the requirements to apply income tax exemption.

Withholding tax is due even from purchase of commercial goods

Pursuant to the tax ruling of April 16, 2019 (ref. no. 0111-KDIB1-2.4010.58.2019.1.BG), in the case of acquiring services from foreign entities that are subject to withholding tax, the due tax should be paid even if the transaction is a mixed service. In the opinion of the Director of the National Fiscal Information, the situation in which in the price of purchased goods part of the payment is remuneration for using a trademark, the remitter is obliged to collect withholding tax on a part of remuneration connected with usage of a trademark. Only when the part of service taxed with withholding tax can be considered as a side or marginal, it is permissible to treat all the remuneration uniformly.

Withholding tax collection requires due care

Director of the National Fiscal Information in a tax ruling of March 22, 2019 (reference number 0114-KDIP2-1.4010.527 2018.2.JC), considered that at the payment of interest, it is possible to collect withholding tax, taking into account the lower tax rate resulting from the relevant double taxation treaty. In the interpretation, the company’s case was considered, the intention of which was to conclude a bilateral cash pooling agreement with an attitude towards effective management of financial resources. The main doubts of the company were whether a lower rate of withholding tax could be applied to interest payments. On the occasion of this inquiry, the company has ensured that the recipient of the interest is their beneficial owner and intends to complete relevant documents to confirm verifiability of the status of contractors with due care. The Director of the National Fiscal Information did not analyze the definition of the beneficial owner, but stated that a lower rate of withholding tax can be applied while meeting the conditions of the beneficial owner and keeping the due care during checking these conditions.

Costs excluded from tax costs in case of having a common source of income in a related limited partnerships

The Provincial Administrative Court in the judgment of April 17, 2019 (reference number III SA / Wa 1556/18) stated that the limit of assuming the cost of intangible and legal services as tax-deductible is also applicable to transactions concluded between limited partnerships, in which one and the same company is a partner. In addition, the limit on the recognition of the costs of intangible and legal services applies to both entities that actually incur costs for intangible services and to entities whose costs are assigned on a pro rata basis.

Taxation of exchange of plots with 23% VAT rate

According to the tax ruling of January 4, 2019 (ref. no. 0115-KDIT-2.4012.812.2018.2.AGW), the exchange of undeveloped plots, where one of the parties is a municipality is a taxable transaction. In fact, a municipality intended to divide the plots, exchange and then merge with new plots and use the plot to perform the municipality’s statutory tasks. The plot to be converted was purchased without input VAT by law, and by 2010 the plot was being leased. The Director of the National Fiscal Information decided that the planned transaction is not performed as part of statutory tasks of the municipality, therefore the municipality acts as a taxpayer. The transaction could not also benefit from the tax exemption, as the conversion was to cover building land, and also it was not allowed to apply the exemption for second-hand goods, since the purchase took place without input VAT.

It is not the responsibility of companies to maximize taxes

The Supreme Administrative Court in the verdict of 31 January 2019 (ref. no. II FSK 3242/18) dismissing the cassation appeal resolved on the correctness of the verdict of the District Administrative Court repealing the refusal to issue a precautionary opinion. In the court’s opinion, the refusal of a precautionary opinion should be properly justified, in particular, by the fact that the planned activity is meant to be performed primarily in order to achieve a tax advantage. It requires, among others, a proper assessment of the applicant’s economic objectives, showing the contradiction of the tax advantage with the objective of the law and demonstrating the artificiality of the planned activity. If the tax authority does not justify the refusal to issue an precautionary opinion in this way, it means that the applicant’s action falls within the framework of the freedom of establishment.

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