Tax & Legal Highlights for Real Estate – July 2020

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VAT on custom made furniture – change of the general tax ruling

On 27 May 2020 the Minister of Finance, by letter no. PT3.8101.2.2020, amended the general interpretation on the VAT rate for the custom made furniture construction service performed in facilities included in the social housing program. Until now, the tax authorities have based on a general interpretation from 2014, where it was indicated that the reduced 8% VAT rate can only be applied to furniture installed in the premises in a way that interferes with the building or its part, which makes it impossible to dismantle (e.g. fittings permanently fixed with screws, bolts, adhesives, etc.). In a recent general interpretation, the Minister of Finance pointed out that we can also talk about the realization of durable furniture development when the furniture is made to individual order, which takes into account the elements of the construction of a specific building. An example can be a custom-made wardrobe in a specially measured place made of materials cut to a specific format, provided that the contractor also takes into account in a design structural elements of the building or its parts (e.g. rear and side walls of the premises). The Minister of Finance emphasized that for the taxation of durable furniture construction service at the rate of 8% VAT it is sufficient for the furniture to be installed in a way that prevents it from being used elsewhere.

Issue price of the shares in the merger of companies

According to the tax ruling of the Director of the National Tax Information of 22 June 2020 (0111-KDIB1-2.4010.84.2020.2.AK), the term „issue price of the shares” should be understood as the value of the shares of the acquiring company, determined on the basis of the assets of the acquired company. The shares that will be issued to the shareholder of the target company constitute the „price” for the property of the target company. Thus, it is the market value of the shares in the acquiring company that forms the basis for determining the issue price.
Revenue from the surplus of the acquired company’s assets over the nominal value of the issued shares (the surplus will be transferred to the supplementary capital and the so-called agio will be created), will be exempt from taxation pursuant to art. 12 para. 4 point 3e of the CIT Act.

Property handover is not necessary to consider that it is sold

The Supreme Administrative Court in its judgment of 13 May 2020 (I FSK 2072/19) stated that for the supply of real estate subject to VAT, it is sufficient to conclude a valid sales contract in the form of a notarial deed. The result of the transfer of ownership of a thing in the legal (civil) sense is obtaining the right to dispose of the goods as an owner. The handover of the real estate is not necessary for the transfer of economic power, as this power is obtained by the buyer by concluding a real estate sale agreement in the form of a notarial deed.
The acquisition of real estate ownership in the form of a notarial deed gives the owner the right to dispose of the real estate in both economic and legal terms. The economic sovereignty has a derivative of the legal title for the determination of the delivery of the goods. Only in the event of failure to observe the form of a notarial deed, it is necessary to establish that the entity has acquired the so-called economic rights, i.e. has the ability to freely dispose of the obtained goods.

Method of including loan commissions as tax costs

Pursuant to a tax ruling issued by the Director of the National Tax Information of 5 June 2020 (0111-KDIB1-1.4010.85.2020.2.SG), the expenses incurred in connection with taking out an investment loan should be included in tax costs as follows:

  • the commission on an investment loan can be classified as indirect tax cost as it generally affects business revenues,
  • expenses incurred on the commission for the preparation of the loan agreement should be qualified as indirect tax cost on the date it is incurred,
  • expenditure on the agency commission payable to the bank once a year, throughout the entire loan period, accrued after the date of delivery of the fixed asset for use should be classified as an indirect tax deductible cost on the date of its incurrence, i.e. on the date of payment of each instalment. Although the agency commission applies to the entire loan period, it is due to the bank for each year of credit management
  • expenditure on the administrative commission, paid quarterly during the term of the loan agreement taken out for the purchase of real estate, is to be included in the tax costs indirectly related to income at the date they are incurred.

The tax authority also indicated that indirect tax deductible costs should be settled on the date when a given expense was recognized in the accounting books, regardless of whether the accounting entry was made in the cost account (except for provisions and accruals).

Tax consequences of the disposal of the real estate acquired by a contribution in kind to cover shares in the increased share capital of the company above their nominal value

In its judgment of 6 July 2020 (III SA/Wa 578/20) the Provincial Administrative Court in Warsaw stated that a company may include as tax deductible costs from the disposal of real estate contributed to it by way of a contribution in kind, expenses incurred for its acquisition in the amount of the nominal value of the shares issued by the company in exchange for the contribution in kind, less the sum of depreciation charges. The value exceeding the nominal value of the shares issued does not constitute share capital and, pursuant to Art. 12 para. 4 point 11 of the CIT Act, does not constitute revenue subject to CIT. Thus, since it is neutral in terms of tax revenues, it should also not affect the amount of tax deductible costs.

Conditions for considering contractual penalties and interest as tax deductible costs

In the judgment of 2 July 2020, the Provincial Administrative Court in Gliwice (I SA/Gl 1348/19) found it unlawful to claim that each situation which ended with payment of a contractual penalty is evidence of defectiveness of the goods and consequently each contractual penalty is excluded from tax deductible costs.
The linguistic interpretation leads to the conclusion that it is possible to classify a contractual penalty (other than that indicated in art. 16 para. 1 point 22 of the CIT Act) as tax deductible costs if the condition set out in art. 15 para. 1 of the CIT Act, i.e. incurring a cost in order to achieve income or to maintain or secure a source of income, is met.

Payments to foreign entities for purchased remote “call center” services is not subject to withholding tax

The Director of the National Tax Information in a tax ruling of 19 June 2020 (0114-KDIP2-1.4010.114.2020.2.SP) decided that the „call center” services purchased by the company from foreign affiliates are not services subject to withholding tax, in particular they do not constitute consulting services, market research, advertising services, management and control, data processing, insurance, guarantees and sureties or benefits of a similar nature. There are functional differences between these services.

The „call center” services perform a different function, they pursue different economic goals, i.e. ensuring contact with the customer, handling complaints and customer inquiries, organizing roadside assistance, handling inquiries from domestic dealers regarding after-sales procedures, support in car repairs. All these activities are undertaken as part of activities developed and made available by the company.

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