Tax & Legal Highlights for Real Estate – January 2020

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Individual tax account for all taxpayers

From 1 January 2020, PIT, CIT and VAT payers are obliged to pay tax liabilities for the so-called micro-account. The purpose of introducing micro-accounts is to facilitate payments made by taxpayers. The tax offices do not inform the taxpayers about their individual accounts. Thus the taxpayer should visit website and then in the „mikrorachunek podatkowy” tab enter his PESEL (in case of persons who are not entrepreneurs or not registered VAT payers) or NIP (in case of entrepreneurs, registered VAT payers as well as social and/or health insurance payers). The micro-account is only used for tax payments. A tax refund shall be received under the current rules. What is important, excise tax, tax on civil law transactions and real estate tax continue to be paid according to the current rules, i.e. to the account of a given tax office (please note tax offices may use new account numbers as of 2020).

Payment to an account outside the White List? Nothing lost

From 1 January 2020, taxpayers that make payments to contractors who are active VAT payers on account of a transaction, the value of which exceeds PLN 15.000, are as a rule obliged to make payment to the settlement account included in the White List. Failure to comply with this obligation exposes the taxpayer to consequences in the form of the impossibility to include the expense in tax costs or the necessity to increase revenues as well as joint liability in VAT of the taxpayer together with the contractor. However, a taxpayer who has made a payment to an account outside the list has the possibility to avoid indicated financial sanctions by notifying the tax office competent for the issuer of the invoice within 3 calendar days from the transfer order. Establishing the jurisdiction of a tax office in such a short period can be problematic. Therefore, the Ministry of Finance reassures that even if a taxpayer sends a notification to the incorrect office, it will be forwarded according to the jurisdiction.

Tax remitter’s obligation that allow not to withhold WHT

In its judgment of 14 January 2020, Provincial Administrative Court in Kraków ruled that a tax remitter who wants to apply art. 7 par. 1 of the Polish-Irish Double Taxation Convention and do not want to collect withholding tax on the basis of the Polish CIT Act is obliged to carry out a full verification of the conditions under which this exemption and non-collection of the tax may be exercised, applying due care. Due care cannot be limited to verifying only the conditions of application of the non-deduction under art. 7 par. 1 of the Polish-Irish Double Taxation Convention. The amended provisions of the CIT Act that modify the manner in which Poland verifies the right of taxpayers to take advantage of preferential withholding tax rules, were implemented to ensure that income/revenue is taxed in the place where it was earned in accordance with Polish law, EU law and double taxation treaties to which Poland is a party.
The presented judgment is not final, but it is in line with the interpretation presented by tax authorities and administrative courts.

The income adjustment is neutral under the VAT Act

Since the adjustment to a determined level of profitability received or paid by the company does not relate to specific invoices, individual items of these invoices or prices originally applied (there is no direct influence on the product prices), the payment made or received by the company as a profitability adjustment will not result in an adjustment of VAT settlements concerning the sale of goods and services to a related party. Such a position was presented by the Director of National Tax Information in a tax interpretation of 3 January 2020.
Presented position is in line with the established interpretation line of tax authorities.

Renting a residential property as part of the business activity will not be exempt from VAT

A tenant who is an entrepreneur sublets or provides his employees with rented accommodation free of charge. Pursuant to the judgment of the Provincial Administrative Court in Kraków of 14 November 2019, such property pursue a residential purpose, but this purpose is not exclusive. In such a case, it cannot be assumed that the lease realized by this entrepreneur is covered by the exemption under art. 43 par. 1 point 36 of the VAT Act as the use of a residential property „solely for residential purposes”. The presented view is in line with the jurisprudence of the Supreme Administrative Court, according to which the VAT exemption of a lease of residential premises is an intentional exemption aimed at protecting tenants of residential premises that actually satisfy their housing needs through this lease.

Tax neutrality of the confusion of receivables and liabilities under the CIT Act

In the case of takeover of the assets of a liquidated subsidiary, no tax revenue will arise as a result of the expiry of mutual liabilities and receivables, including those resulting from loans granted to the subsidiary (taking into account the principal and accrued interest). Expiry of liabilities as a result of confusion takes place by operation of law following the accumulation in the hands of one entity of the creditor’s rights and the debtor’s obligations. In such situation both the debt and the corresponding claim shall expire. Therefore, both assets and liabilities of the company taking over the assets of the liquidated subsidiary will be reduced. Such a position was taken by the Director of National Tax Information in a tax interpretation of 8 January 2020.

Costs related to the purchase of shares in a subsidiary, such as interest and fees on a loan and costs of a bank guarantee should be included in tax costs on the date they are incurred

The costs of a loan taken out for the purchase of shares in a subsidiary and a bank guarantee granted, i.e. fees, commissions and interest, shall not be considered as expenditure on the purchase of shares, but as payment for the loan. Therefore, they are tax deductible at the date of their payment or capitalization. Such expenditure should be classified as non-direct costs, as it is not directly reflected in the received revenue but is a condition for obtaining it. Expenditure on the acquisition of shares includes expenditure which directly determines the acquisition of these shares (such expenditure without which effective acquisition of the shares would not be possible). Such expenditures are e.g. share purchase price, notary fees, brokerage commission, tax on civil law transactions related to the purchase of shares.
This position was held by the Director of National Tax Information in a tax interpretation issued on 20 December 2019.

No WHT due on computer program license

In a judgment of 19 November 2019, the Provincial Administrative Court in Gliwice ruled that remuneration paid to a Croatian company for using computer software is not subject to withholding tax under the Polish-Croatian Double Tax Convention. The definition of royalties expressed in this convention does not include remuneration for the use of computer software, as it is in other conventions with e.g. Kazakhstan, Portugal or Norway. Therefore, revenue for the use of the software must be classified as profits of an enterprise taxed in the licensor’s State of establishment. The judgment is not final.

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