Małgorzata Dankowska
Małgorzata Dankowska Partner, Tax Advisor

Tax & Legal Highlights for Real Estate – April 2020

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Tax reliefs for companies fighting against coronavirus

Based on the so-called Anti-crisis Act, entrepreneurs can take advantage of different tax facilities. One of them is the possibility to deduct from the taxable income a donation made to medical entities (hospitals) in order to counteract COVID-19. The subject of the donation may be funds or in kind goods, e.g. cleaning products. If a donation is made by 30 April, it is deductible in the doubled amount and if it is made in May, it is deductible in the amount multiplied by 1,5.
Another solution for companies is the one-off depreciation of fixed assets acquired for the production of COVID-19 countermeasures, in particular: protective masks, respirators, disinfectants, medical protective clothing, shoe protectors, gloves, glasses, goggles and hand hygiene products.
For entrepreneurs who work on innovative solutions used in the fight against the coronavirus, the Act allows reduction of the amount of the income tax advance to 5%.
The Anti-crisis Act also increases the exemption limits referred to in the PIT Act, concerning, among others, benefits in kind received by an employee from the Social Benefit Fund to PLN 2 000 per year, subsidies for children and youth vacation (other than those from the Social Benefit Fund) to PLN 3 000.
Entrepreneurs may also, under certain conditions, deduct the loss already incurred in 2020 from the income earned in 2019. Another convenience is the postponement of tax advance payments from the salary paid for March and April for employees and persons providing services under the civil law contracts. In case of the so-called bad debt relief, entrepreneurs who are late with payments to their contractors may take advantage of the exemption from the income adjustment obligation.
The Anti-crisis Act provides more facilities. The ones mentioned above are exemplary and the possibility of their application is subject to certain conditions.

Tax proceedings and controls suspended for the duration of the epidemic risk

The Anti-crisis Act provides for the suspension of deadlines for tax inspections, customs and fiscal controls, tax proceedings, fiscal penal, judicial and administrative proceedings. The suspension of deadlines also concerns enforcement proceedings. An exception is a situation in which an authority may demand that a specific action needs to be taken if the public interest or an important interest of a party or the controlled party so requires. The suspension is to be valid for the duration of a coronavirus emergency.

The transfer of assets of the liquidated company to its shareholders will not result in tax revenue for that company

The transfer of post-liquidation assets by a limited liability company to its shareholders will not result in taxable income for the company. In the individual interpretation of 17 October 2019, ref. IBPB-1-1/4510-137/16-2/SG, the tax authority granted the company a positive opinion. The interpretation was issued after the judgment of the NSA.
The tax authority indicated that art. 12 par. 1 of the CIT Act does not contain references to the liquidation of a capital company and the transfer of its assets to shareholders in connection with liquidation proceedings, and therefore cannot constitute an unambiguous source of the tax obligation of the liquidated company.
The authority pointed out that the transfer to a shareholder of the assets of a liquidated company does not constitute a disposal for consideration within the meaning of art. 14 par. 1 of the CIT Act, as it is a unilateral legal action, and at the same time free of charge, as the company does not receive anything in return.
Moreover, the situation of transfer by the company of its liquidation assets is also not covered by the regulation of article 14a of the CIT Act, which clarified the issue of tax consequences of settling liabilities by provision a non-cash benefit. The division of the assets of a liquidated company between its partners is a separate activity of a different nature than the settlement of liabilities. The division of the company’s assets remaining after the settlement of liabilities between its partners results directly from the relevant provisions of the Commercial Companies Code and is, in a way, automatic, as the execution of an activity resulting directly from those provisions. It is not preceded by the company’s obligation towards its shareholder.

The construction contractor will not reduce the VAT due in connection with the price discount, which corresponds to the value of works performed by substitute contractors

In accordance with the tax interpretation of the Director of the National Tax Information of 24 March 2020 (ref. 0114-KDIP1-2.4012.743.2019.3.RD), the price discount granted by the construction contractor to the investor cannot be considered as the post-trade discount, which is the basis for the reduction of the tax base and for the reduction of tax due for the construction service.
The price discount was to be granted by the construction contractor due to the fact that part of the work to be performed by the contractor was in fact performed by substitute contractors. As a result, the investor paid the remuneration due to the substitute contractors. The tax authority decided that the value of the work performed by the substitute contractors should not be treated as a price discount by the contractor. When entrusting part of the work to substitute contractors, the investor did so at the contractor’s expense and risk. At the same time, works performed by substitute contractors constitute an element of the construction project which the contractor was obliged to carry out.
What is more, the contractor will be responsible to the investor for works performed by substitute contractors (he will provide a guarantee, warranty to the investor for that works). Hence, in this particular case, although the investor has paid the remuneration due for the works carried out to the substitute contractors – works carried out by substitute contractors should be considered as having been provided by the contractor to the investor.

The possibility of including in tax deductible costs compensation for lost profits due to delays in the execution of a development project

The Voivodship Administrative Court (WSA) in Warsaw ruled on December 6, 2019 (file no. III SA/Wa 917/19) that the compensation for lost benefits due to delays in the development project may be classified as tax deductible costs. In the court’s opinion, an expense which is a consequence of the complainant’s action, which, while avoiding higher costs (related to the withdrawal from the contract by the purchasers and their demand for payment of a contractual penalty), decides to pay lower costs in the form of compensation for lost benefits paid to the purchasers, constitutes a tax deductible cost.

Expenses incurred in connection with settlements concluded between the company and its minority shareholders are not deductible costs

In accordance to the tax interpretation of the Director of National Tax Information of 24 March 2020 (ref. 0111-KDIB2-1.4010.28.2020.1.AR), payment by the company’s legal predecessor or by the company of remuneration paid in connection with settlements for the benefit of minority shareholders cannot be considered as an action to preserve or secure a source of income.
As a result of the settlements, the minority shareholders committed themselves not to raise any claims or charges against the company, while the company committed itself to pay certain amounts of compensation to them. The concluded settlements ended the current dispute. In the opinion of the tax authority, in the case at hand the condition for incurring an expenditure for the relevant purpose was not met due to the lack of a causal link between the expense and the tax deductible cost. These expenses were neither incurred for tax purposes, nor intended to preserve or secure a source of income.

The issue of applying the split payment mechanism under article 108a par.3a of the VAT Act

Director of National Tax Information in a tax interpretation of 4 December 2019. (ref. 0114-KDIP1-1.4012.474.2019.3.IZ) confirmed the position of the company, stating that it is obliged to apply the split payment mechanism. In addition, if a company decides to pay by one transfer order receivables arising from several invoices issued to the company in a period not shorter than one day and not longer than 1 calendar month, it may make such collective transfers using the split payment mechanism. A split payment will cover all transactions from a selected period concerning the same contractor. The Director of National Tax Information also confirmed that for transactions of less than PLN 15 000 gross, the buyer may apply the split payment mechanism on a voluntary basis.

The issue of recognizing activities as research and development within the meaning of the CIT Act

In the interpretation of 6 December 2019 (ref. 0111-KDIB1-3.4010.443.2019.2.JKU), the Director of National Tax Information indicated what conditions should be met in order to consider the activity as research and development within the meaning of article 4a point 26 of the CIT Act. According to the Director of National Tax Information, this is the activity which is aimed at creating new and original solutions, often of a unique nature, which are not reproducible. Secondly, research and development activity must be undertaken in a systematic manner. Thirdly, such activities must have a specific purpose, i.e. they should be aimed at increasing the knowledge base and using it to create new applications. The work carried out should be aimed at producing new materials, products or equipment, initiating new and significantly improving existing processes, systems or services. Development work does not include routine or periodic changes to existing products, production lines, manufacturing processes, services, even if such changes are improvements.

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