Tax & Legal Highlights for Real Estate – December 2019

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New WHT collection regime postponed until 30 June, 2020

Pursuant to the draft Regulation of the Minister of Finance published on December 9, 2019, the provisions regarding the new WHT collection regime for payments exceeding PLN 2 million are excluded from application until June 30, 2020. The regulation provides a postponement of WHT provisions only in respect to the CIT payers.
Payments of amounts due to PIT taxpayers from July 1, 2019 are subject to the new WHT tax collection regime.
It is worth recalling, however, that from January 1, 2019, a new definition of the beneficial owner has been applied to payment of receivables to both PIT and CIT taxpayers.
All taxpayers are also required to verify with due care the conditions for application a lower tax rate, tax exemption or not withholding tax.

Possibility of changing the rates at the beginning of the tax year

For many taxpayers, new calendar year equals new tax year. Therefore, at the beginning of upcoming new tax year, those taxpayers may change the amount of depreciation charges for fixed assets by reducing them, increasing them or changing the frequency of making them. It is therefore worth documenting the will to change the amount of the depreciation rate.
In addition, taxpayers who have previously used the degressive method may be required to switch to the straight-line depreciation method. This will happen if the annual sum of depreciation in the coming tax year using degressive depreciation would be lower than using the flat rate.

Taxpayers with deferred tax year ending between 1 October, 2019 and 31 December, 2019 may be required to prepare the documentation within 3 months

Taxpayers whose tax year ends between 1 October 2019 and 31 December 2019 and have opted to prepare documentation for the year starting after 1 January 2018 under the “old rules” (i. e. pursuant to the provisions in force from 1 January 2017 to 31. 12. 2018 ), are obliged to prepare the documentation within 3 months since the end of the tax year. It is the result of the individual tax ruling of the Director of the National Revenue Information of 22 November 2019, reference number: 0114-KDIP2.2.4010.421.2019.1.SJ. The problem is related to the wording of the Resolution of the Minister of Finance of 14 March 2018 on the extension of deadlines for the performance of certain tax documentation obligations. § 3 of the Regulation indicates that extended deadlines concerns those deadline which lapse in 2018 and 2019.
Consequently, the documentation for which the deadline lapses in 2020 must be prepared within 3 months of the end of the tax year.

Possibility of including expenditure related to delays in the execution of a development project as tax deductible costs – appealable judgement

Voivodship Administrative Court in Warsaw in the judgment of 6 December 2019, Ref. III SA/Wa 917/19, repealed an negative tax ruling which overruled to allow the taxpayer a possibility to include, as tax deductible costs, the expense incurred for the payment of an remuneration to contractors, in connection with delays in a development project execution. What is important, a taxpayer in his argumentation referred to the arguments of the tax authority expressed in another individual tax ruling, that has been obtained by him on 2nd July 2018, ref. 0114-KDIP4. 4012. 274. 2018. 1. BS, with regard to the value added tax, in which the authority classified the given remuneration as an expenditure which does not constitute compensation within the meaning of the provisions of the Civil Code.

The Voivodship Administrative Court in Warsaw has agreed within the taxpayers’s position in an oral justification to this case. The court indicated that article 16. 1. 22 of the CIT Act (list of non-tax deductible costs) shall not be applied in this case. In Court’s opinion, the taxpayer’s activity must be concluded as reasonable (i.e. lodging the payment by the taxpayer to its contractor) a remuneration on the basis of an separate agreement aiming at minimising the risk of the counterparty’s withdrawal from the investment. At present, no written statement of reasons for the judgment is currently available.

The agent’s activities in the light of rules concerning permanent establishment

The Voivodship Administrative Court in Warsaw in the judgment of 25 July 2019, reference number III SA/Wa 2687/18, dismissed the complaint regarding individual tax ruling regarding the negation of the existence of a permanent establishment of a German company. The Court found that the agent’s marketing activities pursued the same objectives as the main activity of the German company (who specialized in polymer production). The agent’s tasks include performing marketing activities. In the case of B2B sales, this means, among others direct search for potential customers. Therefore, the agent’s actions should be considered as key to the conclusion of sales contracts by the German company with clients acquired by the agent (although formally the agent has no authority to conclude contracts and submit binding offers). This means that the abovementioned Agent’s employees play a key role in concluding contracts that are formally concluded by a German company. Thus, the German company has a permanent establishment in Poland. The German company conducts business in Poland by using an agent within the meaning of art. 4a.11 of the Polish CIT Act in connection with art. 5.5 Polish-German Double Tax Treaty. Consequently, the German company is subject to limited tax liability in Poland.

Release of liquidation proceeds of legal person to its shareholders and the matter of CIT taxation on the company level

The Supreme Administrative Court in the judgment of 5 June 2019, reference number: II FSK 866/18, held a position that in the case of transfer of the company’s liquidation assets, no revenue is generated on the side of the liquidated company (legal entity). The Supreme Administrative Court emphasized that the division of a liquidated company’s assets between partners, is an activity of a different nature than the settlement of liabilities. In addition, in the event of an release of post-liquidation assets in kind, the situation in which the performance of a non-monetary benefit takes place in lieu of cash does not occur. Consequently, art.14a point 1 of the Polish CIT Act will not be applicable. It should be stressed that, it is subsequent judgment of the Supreme Administrative Court, which is kept in the line within an positive jurisdiction in this matter for taxpayers.

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