Tax & Legal Highlights for Real Estate – March 2020

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Performing function as member of management board as free benefit for the company

The Supreme Administrative Court (further: Court) in the judgment of 30 October 2019 (reference no. II FSK 3717/17) states that in case of performing the function of a board member without remuneration, a free benefit will arise for the company. The case concerns a company, whose some of members of the management board performed their functions without remuneration, while staying in the employment relationship with a parent company. Nevertheless, the Court decided that the equivalent of remuneration is a saved expense for the company. In the opinion of the Court, the above conclusion is not altered by the fact that during the period of performing its function in the company they were employed by the parent company which was the sole shareholder of the company being the plaintiff. The Court stressed that performing the function of a management board member without remuneration would not constitute a free benefit for the company if the member of the management board (and not the parent company which employed him) would be a shareholder of the company in which he performs his function without remuneration.

Insurance agreement without withholding tax

Voivodship Administrative Court in Bydgoszcz in the judgment of 22 January 2020, reference no. I SA/BD 655/19 and the Voivodship Administrative Court in Poznań in the judgment of 11 February 2020, reference no I SA/Po 927/19, held that the insurance agreement is not a consideration similar to guarantees and sureties, and therefore is not subject to withholding tax. The tax authority responsible for issuing individual tax rulings claimed that insurance and guarantee are similar considerations based on provisions of the Civil Code. In contrast, the Companies argued that insurance services are not similar to any of the abovementioned considerations. In support of their arguments, the company pointed to the content of the Act on insurance and reinsurance (i.e. Journal of Laws of 2019, item 381, as amended), which distinguishes an insurance contract from an insurance guarantee. Both positive for taxpayers judgments are still subject to appeal.

Real estate tax – taxing sheds on space or value?

The Supreme Administrative Court in judgment dated 18 December 2019 (reference no II FSK 481/18) that sheds should be classified as buildings on the basis of real estate tax, and not as structures as before. One of the features of a building object that determines its classification as a building is the separation from space by building partitions. Currently, the change of understanding of building partitions can be seen. This is confirmed by the above judgment of the Supreme Administrative Court, in which the Court stated that in order to recognize the object as a building, it is sufficient to mark the building’s boundaries from the surrounding space, and not to close it completely. The Court also referred to the plaintiff’s argument regarding the durability of the components used (e.g. the use of trapezoidal sheets and open-work steel) which did not guarantee the durability of the separation from space. The Court pointed out that the separation from space by means of building partitions „does not indicate the type of material from which the partition is to be made, but rather the function it is to perform, i.e. separating the object from space, considering that it is sufficient to mark borders instead of its complete closure. Therefore, it is worth to check each time the nature of individual objects in order to make a correct classification affecting the manner of taxation and the amount of real estate tax.

The Anti-Crisis Shield for entrepreneurs from the real estate industry

The draft Act amending the Act on special arrangements related to the prevention and eradication of COVID-19, other infectious diseases and the crisis situations caused thereby („the Anti-Crisis Shield”) was published on 21 March 2020. The draft includes a set of protective tools which are aimed at counteracting the negative economic effects caused by the COVID-19 virus pandemic. Solutions introduced by the Anti-Crisis Shield for entrepreneurs from the real estate industry can be divided into tax and legal. Below are some of the most important solutions.

Tax solutions:

  • Extension of the deadline for payment of CIT minimal tax on commercial real estate for March-May 2020 to July 20, 2020.
  • Extension of the deadline for an annual fee for perpetual usufruct and fees for transforming the perpetual usufruct right into ownership right to June 30, 2020.
  • Possibility for municipalities to introduce RET exemptions for part of 2020 for the groups of entrepreneurs whose financial liquidity has deteriorated due to negative economic consequences due to COVID-19.
  • Possibility for municipalities to extend the deadlines for the payment of RET instalments (payable in April, May and June 2020 – no longer than until September 30, 2020).
  • Possibility to settle tax loss from 2020 with income of 2019 in PIT/CIT (with a limit up to PLN 5M) in the event of a 50% decrease in taxpayer’s revenues (tax loss carry-backward).
  • Withdrawal from the application of provisions regarding PIT and CIT bad debts to the taxpayer who is the debtor when its revenues are lower by at least 50%.
  • Extension of the deadline for PIT advances due on remuneration collected in March and April to June 1, 2020.
  • Possibility of deducting in PIT/CIT donations (cash or in-kind) made in 2020 to prevention and eradication COVID-19
  • Exemption from tax on civil law transactions for loan agreements concluded until August 31, 2020.
  • Extension of the deadline for issuing individual tax rulings from 3 to 6 months.

Legal solutions:

  • Introduction of a 90% reduction in rent for the period when the tenant of the premises did not operate in a commercial facility with a sales area over 2000 sq m. during an emergency or epidemic, unless the contract provides for a more favourable solution for the tenant.
  • Lessor may refer the case to court to reduce the statutory rate of rent (90%) and the court, if it is justified by reasons of equity, may set a different amount of rent.
  • Extension of the rental period for premises to 30 June 2020, with respect to rentals expiring before that date.
  • Limitation of the right to terminate lease agreements and increase rents to 30 June 2020.

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