Investor’s expenses incurred by the company – tax treatment
In the judgment of July 28, 2020 (ref. no. II FSK 1420/18) the Supreme Administrative Court (hereinafter: SAC) confirmed that the investor’s expenses incurred by the company may be classified as tax deductible costs. In the case at hand, the taxpayer indicated that its business activity consists of the construction of power lines and stations. The company concluded an agreement with the investor for the construction of a power line. As part of the cooperation, the company obtains all administrative consents on the behalf of the investor. The company has also appropriate power of attorney. The taxpayer asked whether the fees paid by the company on behalf of the investor (resulting from decisions, court judgments and permits issued for the investor) constitute a tax deductible costs for the company. SAC ruled that the tax regulations do not stipulate that the taxpayer cannot be an entity incurring third-party expenses. SAC concluded that in the presented case it may be considered that the expenses are related to business activity, definite and non-refundable. In consequence such expenses may be classified as tax deductible costs.
Refund of construction costs upon expiry of the rent and lease agreement
In the judgment of July 28, 2020 (ref. no. I SA/Gd 161/20) the District Administrative Court (hereinafter: DAC) in Gdańsk confirmed that the refund of expenditures incurred by the taxpayer on the construction of halls on land owned by other entities should be regarded as a supply of goods for consideration in the event of expiry of a rental or lease agreement. The company, upon the owners’ consent (used by the company on the basis of a rental agreement and a lease agreement), built storage halls. The taxpayer deducted input VAT from expenditures incurred for construction of both halls. Compliant to the business arrangements it is planned to settle the expenses between the land and the hall owners. The company’s had doubt whether the refund of expenses incurred by the company for the construction of the halls on both properties in connection with the termination of the rent and lease agreements should be qualified as a supply of goods for consideration for VAT purposes. DAC admitted that the company’s standpoint was correct and argued that when the parties can settle the outlays incurred on someone else’s property the transfer of ownership under civil law is irrelevant. DAC ruled that in the case of refund of expenditure in the form of halls constructed by the lessee to the lessor, the right to dispose of these buildings as the owner is transferred and thus transaction is to be recognised as a supply of goods.
Sale of the organised part of the enterprise and tax deductible costs
One of the key issues during sale of an organised part of the enterprise is the proper determination of the tax deductible cost of the transaction. The taxpayer who sold an organised part of the enterprise had doubts whether the cash which was a component of organised part of the enterprise constitutes a deductible cost in the nominal value. In judgment of August 6, 2020 (ref. no. III SA/Wa 2261/19) the District Administrative Court (hereinafter: DAC) in Warsaw confirmed its tax deductibility. DAC argued that in fact cash is a fairly specific component of the company’s assets – it is neither produced nor acquired. However, for the purposes of recognizing cash as a tax cost, it is sufficient for the seller of organised part of the enterprise to irrevocably get rid of the asset.
Real estate tax base for wind power station owned in partnership
Limited partnership owning wind power station had doubts as to how to determine the tax base of structures for real estate tax purposes. There were two possibilities: either to depreciation or market value. The limited partnership is not a taxpayer of income tax and does not make depreciation write-off for tax purposes. Therefore, the company considered that it should calculate based on the market value. In judgment of August 6, 2020 (ref. no. II FSK 1142/18), the Supreme Administrative Court (hereinafter: SAC) confirmed that the company standpoint is correct. SAC ruled that the tax base of the wind power station owned by the company constitutes their market value calculated by the taxpayer when tax obligation arises. The fact that it is the company’s shareholders who are entitled to make depreciation write-offs remains irrelevant.
TIN for a foreign entrepreneur’s branch
In the judgment of January 31, 2020 (ref. no II FSK 509/18), the Supreme Administrative Court (hereinafter: SAC) confirmed that a foreign entrepreneur’s branch may use the Polish tax identification number (hereinafter: TIN) of a foreign entity. Tax authority claimed that the settlement of foreign personal income tax by a foreign entrepreneur’s branch and a payment of public insurance contributions determines an obligation for a branch to have a separate TIN to an extent that a branch acts as a tax remitter. The SAC, disagreeing with the tax authority, pointed out that a TIN is granted once, regardless of a type or number of taxes paid, a form of taxation or a number of enterprises run. Due to the fact that a branch and the parent entity cannot be treated as separate entities, a foreign entrepreneur’s branch, even in certain cases as a tax remitter, is required to have a separate TIN.
Insurance services and a withholding tax
There are still differences in court judgements whether withholding tax is due on insurance services purchased from foreign entities. Tax authorities claim that insurance services are similar to surety and guarantee services and consequently withholding tax is due. In the judgment dated July 9, 2020 (ref. no III SA/WA 2621/19), the District Administrative Court in Warsaw indicated that there is no similarity between surety and guarantee services vs insurance. The court pointed out, among others, that under an insurance agreement the insurer compensates the loss caused by a specific event (accident), whereas under an insurance guarantee it only meets its obligation to pay a specific sum of money in the absence of performance by the debtor ordering this type of security. A characteristic feature of an insurance contract is a policyholders’ obligation to pay a contribution, which is not the case with guarantees. Moreover, an insurance agreement is always a bilateral agreement with the insurance company as one of the parties, whereas in the guarantee agreement may be trilateral, as its beneficiary may be a third entity not being a party to the agreement. Therefore, entities paying trade liabilities on insurance services to a foreign insurer are not obliged to collect tax in Poland.
Due care in withholding tax dependent on the amount of payment
In judgments of July 9, 2020 (ref. no III SA/Wa 2264/19, III SA/Wa 2265/19), the District Administrative Court (hereinafter: DAC) in Warsaw confirmed that obligations to verify a status of a contractor depend on an amount of receivables. According to the Director of the National Fiscal Information detailed verification of the contractor’s status is obligatory regardless of the amount of payment for the purchased services and should be applied also in situation where a value of purchased services does not exceed the limit of PLN 2,000,000 in relation to a contractor. The DAC in Warsaw agreed with the company, that the introduction of the limit by the legislator was aimed at differentiating verification obligations depending on the receivables’ amount. This is another judgment confirming that an entity purchasing intangible services of an amount not exceeding the statutory limit is not obliged to additionally verify its contractor, provided that a certificate of tax residence is posessed.
A few words about TPR
For the first time, taxpayers obliged to prepare transfer pricing documentation or exempted from such an obligation in terms of preparing documentation for transactions concluded between domestic related entities will submit relevant information to the Head of the National Fiscal Administration in the form of a so-called TPR form. The forms will be available in two versions: TPR-P – for individual persons and TPR-C – for legal entities. These forms will replace the previously used simplified PIT-TP/CIT-TP reports. The purpose of introducing new form is to improve the effectiveness of the selection of entities which should be subject to transfer pricing audit. This will be possible thanks to the detailed data concerning both entities and transactions, to be indicated from the form. As a rule, the deadline for submitting information expires at an end of a ninth month following the tax year, an information relates to. However, due to the postponement of deadlines resulting from the anti-crisis shield 4.0, in 2020, for companies with a tax year equaling a calendar year, the deadline for submission of TPR lapses on December 31, 2020.
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