Tax & Legal Highlights for Real Estate – November 2019

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There is no taxable revenue on liquidation proceeds

According to the judgement of the Supreme Administrative Court of 31 January 2019 (case no. II FSK 370/17) transfer of liquidation proceeds by a company to its shareholders, does not result in taxable revenue for a company. Contradictory to the tax authorities position, the distribution of the liquidation proceeds is distinct from performance of obligations in form of the cash payment (e.g. reimbursement of shareholder loan). The obligation of a company towards its shareholders to transfer liquidation proceeds results directly from the Commercial Companies Code provisions and not from the arrangements between company and its shareholders. Such a transfer is not preceded by the liability of the company towards the shareholders. The abovementioned judgement of the NSA is in the line of other administrative courts judgements issued in favour of taxpayers.


Favourable changes withholding tax regulations

The Ministry of Finance recently explained that new amendments to withholding tax provisions are planned in the first quarter of 2019. Just to remind, revised WHT provisions are applicable only to withholding of the personal income tax. In turn, the provisions regarding collection of corporate income tax has been partly postponed until the end of 2019. According to the postponed CIT provisions, companies payments for non-residents exceeding annually PLN 2m in respect of interest, dividend, royalties and remuneration for intangible services should be taxed with standard WHT rate. Any tax exemptions and reduced WHT rates will be apply only at the stage of submitting an application for WHT refund.
The Ministry of Finance in response to Dziennik Gazeta Prawna revealed that mitigation of WHT provisions is being considered. Amended CIT provisions would not be applied to payments for intangible services at all and WHT Pay&Refund mechanism would be applied only to payments made between related parties. The MF also considers reduction of WHT refund period from 6 months to 3 months, change of beneficial owner definition and simplification of formal requirements regarding the signing of the tax remitter statement.


Free of charge performance of management board member by parent company employees

According to judgement of 30 October 2019 issued by the Supreme Administrative Court (case no. II FSK 3717/17), a subsidiary company in which employees of the parent company perform free of charge the function of management board members, should recognize the taxable income. The SAC judgement break the line of interpretation provided by the tax authorities and administrative courts. So far the tax authorises stated that the performance of the functions of management board members of a subsidiary by persons employed by the parent company does not result in taxable income in the subsidiary. The tax authorities accepted the taxpayers’ argument that the parent company will receive a number of benefits in the future (e.g. dividend) in return for the actions taken by its employees. As a result there is an equivalent benefit, and therefore it is not a free of charge benefit.


Adjustment of the initial value of the fixed asset on favorable terms

In connection with real estate investments activities, taxpayers bear various costs associated with the production or improvement of fixed assets. However, very often taxpayers receive invoices documenting expenses related to the realization of individual stages of work late or the price originally set changes. Consequently, there are doubts how to correct the initial value of the fixed asset (i.e. backwards or on an ongoing basis).
The Head of National Fiscal Information in the tax ruling issued on September 7, 2018 (ref. 0111-KDIB1-2.4010.287.2018.1.AK) stated that such an adjustment should be made on an ongoing basis, by changing the amount of depreciation in connection with the increase of initial value of the fixed asset (for the future) together with an additional write-off equalizing already made depreciation write-offs.
However, there is still doubt, how such a correction affects the tax base for the purposes of so-called CIT minimal tax. This issue remains open at the moment, as the tax authorities have not present standpoint in this regard so far. In addition, the interpretation line of tax authorities regarding the depreciation of fixed assets, as well as the provisions regarding the CIT minimal tax have recently been modified. Thus, in order to properly settle the investments, the current approach of both the tax authorities and administrative courts should be monitored.


MF explains the white list is meant to help, not harm

The MF in the published explanations reminded that the obligation to pay to the account indicated in white list will enter into force from January 1, 2020. From that day the taxpayer, who will be pay for the account outside the list, must take into account the consequences of income tax and VAT.
At the same time, the MF explained that the new regulations apply only to active VAT taxpayers, and therefore do not apply to payments made to an entrepreneur exempt from VAT. In addition, MF has confirmed that individuals can settle using a private account that is not on the white list. It reassures that their contractors will be able to avoid sanctions for payment (exceeding PLN 15,000) to an off-list account. Only the notification to the tax office on the transfer is needed (within three days).
The MF’s explanations should also calm down companies that use the so-called fast internet payments, e.g. PayU or PayPal, because MF indicated that fast internet payments, as well as payment made with the use of debit or credit card, are not considered as „payments made by bank transfer”, i.e. they are not covered by the provisions on the white list. Since this is not a transfer, but an order that contains a payment transaction order, payment by card or pay-by-link will not result in negative tax consequences (loss of tax deductible costs) – we read in the explanations.


Central Register of Real Beneficiaries

Central Register of Real Beneficiaries is electronic register of natural persons exercising effective control over commercial companies. On 13 October 2019, the Central Register of Beneficiaries, i.e. an electronic register of natural persons exercising effective control over commercial companies, was introduced. In principle, all companies under Polish commercial law (with the exception of partner companies and public joint-stock companies) are obliged to submit information on actual beneficial owners and update such information to the Register. Information is submitted to the Register no later than within 7 days from the date of entry of a given company into the National Court Register, and in the event of a change in the information provided – within 7 days from the date of the change. Companies entered into the National Court Register before October 13, 2019 shall submit information on beneficial owners to the Register by April 13, 2020.


The penalty for delays in providing services is not a tax deductible cost

According to the tax ruling of the Director of the National Tax Information of October 24, 2019 (no. 0111-KDIB2-1.4010.387.2019.1.AR), penalties for delays in supplying of goods and services can’t be recognized as the tax deductible costs. In the case, the contractor asked for the interpretation of the provision, since he had paid a penalty for the delay in providing services. In the justification, he pointed out that the delay was caused by circumstances beyond his control. Therefore the contractor had doubts as to whether he had the right to consider the expenses as the tax deductible costs. The Director of the National Tax Information stated that the delay in providing services is also a service failure. Therefore, in accordance with Article 16 clause 1 item 22 of the CIT Act, contractual penalties cannot be considered as the tax deductible costs. It is not relevant if the delay is caused due to the contractor’s fault.


The taxpayer will pay other taxes from the VAT account

The obligatory split payment mechanism for the delivery of goods and services, which until now had been covered by a reverse charge regime, entered into force on 1 November 2019. In addition, the obligatory split payment applies to transactions that cover, among others machinery and electrical devices, coal or motor vehicle accessories. A detailed list is attached as Annex 15 to the VAT Act. Split payment mechanism is a solution used to make payments documented by invoice amounting to at least PLN 15.000 or the equivalent amount. The net amount is paid by the buyer to the seller’s bank account, while the VAT portion is paid into a special, account assigned to the seller. As of 1 November 2019, the taxpayer can allocate the funds accumulated on VAT account not only for the value added tax, but also for corporate income tax, personal income tax, excise tax and customs duties. The taxpayer is not allowed to distribute the funds accumulated on the VAT to another account without consent of the head of tax office.


Congestion tax has been postponed

In connection with recent reports regarding the introduction of tax on the retail sector, numerous questions began appear. However, the latest information indicates that the tax will not be implemented in the near future. The congestion tax rules are based on a trade tax in Spain. The purpose of introduction the tax was among the others reduction of car traffics in the city center, reduction of pollution and noise emission. The idea aroused controversy and interpretation doubts. According to experts, the project requires broader public consultation.


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