Tax & Legal Highlights for Real Estate – September 2019

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Limitation on tax deductibility of expenses for intangible services apply also to costs which are reinvoiced on taxpayers by the related parties

According to the judgement of 12 September 2019 issued by the Provincial Administrative Court in Warsaw (ref. no. III SA/Wa 88/19) the expenses for intangible services which are reinvoiced on the company by the related entity are subject to limitation in the line with corporate income tax act. In turn, such limitation does not apply to expenses which are reinvoiced by the company on other entities. The above results directly from the explanatory notes published by the Ministry of Finance as well as from the valid judgement of 18 December 2018 issued by the Provincial Administrative Court in Poznań (ref. no. I SA/Po 762/18).

Collective tax returns regarding tax on civil law transactions (PCC-4)

Since July this year, the collective tax returns regarding tax on civil law transactions apply. So far, taxpayers who performed within a month several transactions subject to TCLT were obliged to submit separate tax returns (PCC-3) for each of them. Thus, this new solution will facilitate PCC settlement. Entitled to submit such tax return are taxpayers who performed within a month at least 3 activities including loan contract, or contract for sale of goods or property rights. Importantly, a time lag between the first and the last of the activities shall not exceed 14 days. The deadline for submitting the tax return (PCC-4) is 7th day of the month following the month in which the transactions took place.

The mandatory Split Payment is coming

As of 1 November 2019 amended provisions regarding split payment mechanism come into force (SPM). Mandatory SPM will apply to i.a. delivery of steel, scrap, non-ferrous metals, fuels, plastic materials and delivery of services such construction, fit-out or installation works. In general, split payment will apply to taxpayers who so far apply reverse charge mechanism. The obligation for the taxpayers to account in SPM arise when the value of the transaction exceeds PLN 15,000 or the equivalent in foreign currency.
New provisions also introduce a requirement to include the wording “mechanizm podzielonej płatności” on invoices. In case of the absence of such phrase on the invoice or when taxpayers despite of the obligation to make the payment in SPM will make payment out of the scope of the mechanism, the sanction in the amount of 30% of the VAT will be imposed.

Withholding tax – is more difficult to apply preferences

Along with withholding tax amendment introduced in 2019, many doubts arise with respect to the tax remitter’s statement and opinion on exemption application. In each of these cases, it should be stated that the taxpayer is the beneficial owner of the payments due, but determining this is not always easy for the remitter. The Polish provisions on withholding tax provide a beneficial owner clause only with respect to interest and broadly defined royalties.
Thus, the status of the beneficial owner should not be a condition for applying the exemption / reduced rate for e.g. consultancy services or dividends. Therefore, the introduction of such a requirement by de facto technical provisions regarding the procedure of collecting the tax raises doubts. Having in mind the above, in the current legal status, the safest approach seems to be the examination of the beneficial owner status also with regard to payments for intangible services or dividends.

CIT minimal tax not for developers

Temporary rental of a building intended for sale by the developer is not subject to tax on building income, i.e. CIT minimal tax. According to tax authorities, revenues from rental of a building not entered in the fixed assets register will not be taxed with a CIT minimal tax regardless of the period of its use. The above statement is confirmed by the latest tax rulings issued by the Head of National Fiscal Information Serviceof on August 21, 2019 (ref. 0111-KDIB2-3.4010.273.2019.1.KK) and August 16, 2019 (ref. 0114-KDIP2-1.4010.256.2019.1.JC).

Tightened rules on removing from the VAT register

On September 1, 2019 amendments to the VAT Act came into force. From now on, the periods of not submitting declarations, after which the taxpayer will be removed from the VAT register are reduced by half. Pursuant to applicable provisions, the entrepreneurs will suffer the consequences for failure to submit declarations for one quarter or three consecutive months. However, in this case the Head of Tax Office is allowed to restore the registration without the need to submit a registration form. In accordance with the amendment to the Act, the registration will be also restored in case of the submission by a taxpayer empty declarations, if the reason is a specific nature of their business. But, in both cases provided that an application for restore within a period not exceeding 2 months since the removal from the register is submitted.

Restrictions on charging into tax deductible expenses remunerations of support in sale of premises

According to the latest position of the tax authorities, premises sale support services are subject to limitation pursuant to art. 15e par. 1 point 1 of the CIT Act. In this particular case, developer as a shareholder purchases services from a related party. The company deals with presenting offers to the clients, advising and organizing meetings in order to sign contracts. To decide whether these services are included in the scope of the abovementioned provision, it was necessary to determine whether the elements characteristic for the activities directly listed in this provision, outweigh the specificities for activities not listed therein. The tax authority considered that the services mentioned above are similar to the services listed in art. 15e, despite the fact that they also have characteristics for services other than those indicated in the provision. In view of the above, it is concluded that the remuneration costs of support in sale of premises are subject to restrictions on charging into tax deductible expenses.

Minimal CIT tax refund raise taxpayers’ concerns

MinCIT taxpayers are allowed to apply to the tax authorities for its refund. The tax is refundable provided that the tax authority will not identify any irregularities in the tax settlements. Following doubts as to the authority’s verification of the scope of billing, few taxpayers decide to do so. Any elements that may impact on the tax result can be verified, i.e. documentation concerning methods on determination the initial value of fixed assets, details of debt financing, or transfer pricing documentation (if needed). Review of settlements before submitting an application for a refund of minCIT allows to find potential irregularities. It should be emphasized that resignation from submitting tax refund applications may rise question, why the taxpayer who is entitled to tax overpayment does not apply for its refund.

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