Małgorzata Dankowska
Małgorzata Dankowska Partner, Tax Advisor

Tax & Legal Highlights for Real Estate – August 2019

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At the end Budimex won the VAT dispute

According to the judgment of the Supreme Administrative Court of 18 July 2019 (ref. no. I FSK 65/16), the VAT obligation only arises when the delivery and acceptance report has been signed. The long-awaited judgment dispels interpretative doubts of taxpayers and tax authorities. The SAC argued its position, among others referring to the common practice used by construction companies, according to which their services are performed only at the time of their receipt, when it is possible to determine the remuneration due for their performance. This verdict was issued after the judgment of The Court of Justice of the European Union, dated May 2, 2019 (reference number C-224).

VAT on the lease. Each successive tax ruling is a different standpoint

Currently, the tax authorities claims that renting an apartment to a company for the needs of its employees is subject to VAT exemption.
Recently, they were of the opinion that a rate of 23% is due. If the agreement directly indicates that it concerns a flat and that the tenant undertakes to use the leased flat only for the housing purposes of his or her employees, the VAT exemption will apply. This position is presented in the latest individual interpretations, e.g. from 1 August 2019, no. 0114-KDIP1-1.4012.314.2019.2.COM, 0114-KDIP1-1.4012.269.2019.2.EW.

The actual president of the management board actually bears responsibility for the company’s tax obligations

Pursuant to the judgment of the Supreme Administrative Court of 14 May 2019 (ref. no. II FSK 1832/17), the lack of entry in the National Court Register (NCR) does not protect the actual president of the management board from liability for the company’s tax obligations. The SAC pointed out that the resolution of appointing a member of the company’s management board has been effective since its adoption, while the entry in the NCR has only a declarative character. A person who actually performs managing functions in the company, when the execution of the company’s assets proves ineffective, will therefore be jointly and severally liable with all his assets for the company’s obligations, despite the lack of disclosure of that person’s data in the NCR.

There will be no small simplified Advanced Pricing Agreements (APA)

The latest version of the draft Act on Settlement of Double Tax Disputes and Conclusion of Previous Pricing Agreements of 31 July 2019 no longer contains regulations concerning the so-called small APA (, i.e. simplified prior price agreements. Possession of such a document which is a type of agreement concerning terms and conditions of transactions with related parties concluded with the tax authorities in a simplified version was to be a method to secure the right to tax deductible costs of purchase of intangible services from related entities without applying the limit under Article 15e of the CIT Act. This regulation allowing to recognize the expenses on this account in the amount of up to PLN 3 million plus 5% EBITDA as tax deductible costs. Obtaining a small APA was supposed to be less costly and faster than obtaining an ordinary APA. An alternative included in the draft act is a cooperation agreement between entities, with revenues exceeding EUR 50 million, and tax authorities. However, the condition for its conclusion is, among others, a positive opinion from the preliminary audit conducted by the Head of the National Treasury Administration, which may effectively discourage companies from such cooperation.

The tax authorities changed its position on the value of the transaction

The value of the transaction for the purposes of preparing transfer pricing documentation should be determined by taking into account the value of transaction, that affects the determination of the taxpayer’s income. The amount of VAT has no such impact, so the net amount should be taken into account. Thresholds for determining the documentation obligation are set in relation to revenues within the meaning of the Accounting Act which indicates the value without VAT. Among others, these arguments were invoked by the Head of the National Treasury Administration in its tax ruling from 24 May 2019. (No. DPP13.8221.25.25.2019.GTM) – an interpretation which is an ex officio change of a negative individual interpretation for a taxpayer of 2 March 2018. (No. 0111-KDIB1-3.4010.523.2017.1.APO). The changed interpretation concerned the factual state before 1 January 2019, i.e. before the entry into force of Article 11k(2) of the CIT Act, defining the documentation thresholds triggering the obligation to prepare local transfer pricing documentation for specific types of transactions, This provision specifies the previous legal status indicating unambiguously the obligation to recognize the transactions’ amounts in net value. The Head of the National Treasury Administration stated that the new provision reflects the general intentions of the legislator, which should be taken into account also in the period prior to the entry into force of the said provision.

New formalities in withholding tax are new obligations for tax remitters

The new obligation on the withholding tax remitter to exercise due diligence when verifying whether the conditions for exemption or preferential tax rates under double taxation treaties are met raises a lot of interpretation doubts due to the lack of a definition of due diligence in the regulations. On the basis of clarifications issued on June 19, 2019 by the Ministry of Finance and few individual tax law interpretations, it can be stated that the requirement concerns, among others, verification whether the contractor meets the conditions of the real payment owner, which is much more complicated than e.g. checking the possession of a certificate of tax residence. The subject is particularly important because the verification of the way of dealing with new regulations is burdened with sanctions under the Fiscal Penal Code, which may affect in particular the members of the tax remitter’s management board.

Further amortization only on the same assets

The District Administrative Court in Poznań in the judgment of 5 June 2019 (ref. no. I SA/Po 233/19) indicated that the initial value of fixed assets contributed in-kind to the company should correspond to the original initial value (historical value) only in the situation, when the item contributed into the company and previously amortized is the same. In the case, it was disputed to contribute to the company separate properties after their separation from the building used so far in business activity. In the opinion of the court, in such a case a new property has formed, for which the initial value can be assumed to be the market value – resulting from the appraisal report – and not the historical value of the building from which the ownership of the property was extracted.

Costs only in the event of disposal of a debt that is not time-barred

If the loss from the sale of receivables previously recognized as revenue for consideration concerns time-barred receivables, it can still be recognized as a tax deductible cost? Pursuant to the verdict of the Supreme Administrative Court of 24 July 2019, provisions of the CIT Act clearly indicate that the time-barred receivables cannot be tax deductible cost, which should be applied rigorously. In the Court’s opinion, a company which sold its own receivables and therefore paid income tax was not entitled to recognize the tax deductible cost of the loss recorded on the sale because it related to time-barred receivables.

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