Judgment of the Constitutional Tribunal on property tax
The Constitutional Tribunal in its judgment of February 24, 2021 (SK 39/19) ruled that the provisions of the Act on Local Taxes and Fees, which recognise all real properties owned by an entrepreneur or other entity conducting business activity as being connected with the business activity, are unconstitutional. In substation, the Tribunal explained that the current wording of the legislation leads to a situation where all real properties owned by an entrepreneur are subject to taxation at the highest real property tax rates foreseen for real properties connected with business activity. Also in situations when the properties are not used for business purposes. According to the Tribunal, failure to differentiate between the situation of taxpayers who own property but do not use it for business activities and those who use the property for business activities results in a disproportionate tax burden and leads to a constitutionally unjustified infringement of the right to property. In the operative part of the judgment the Tribunal uses the term „entrepreneurs or other entities conducting economic activity„. Such a wording may suggest that it should also apply to all other entities conducting economic activity despite the fact that the judgment was issued on the basis of a complaint filed by a natural person conducting economic activity.
Taxation of a limited partner of a German partnership holding property in Poland
The Director of the National Fiscal Information in an interpretation dated March 23, 2021 (no. 0114 KDIP2-1.4010.452.2020.4.SP) resolved tax doubts concerning a limited partner of a German limited partnership which branch in Poland holds property. The tax authority decided that there is no tax permanent establishment in Poland for the limited partner. Moreover, income generated as a result of the partnership’s activities in Poland will be taxed in accordance with the provisions of the Polish-German double taxation treaty. The tax authority added that the limited partner of the partnership is obliged to register as a CIT taxpayer and settle income obtained in Poland in a relevant proportion compliant with the Polish CIT act and the Polish-German double taxation treaty. Furthermore, the authority confirmed that costs related to activities in Poland related to property rental and management are tax deductible and can be deducted from property rental income. In the last question, the tax authority confirmed that the partnership’s limited partner will not be required to apply transfer pricing rules and prepare documentation in accordance with the Polish CIT act.
VAT consequences of reinvoicing costs for a delay
The District Administrative Court in Warsaw (hereinafter: DAC) in its judgement of March 10, 2021 (sign. III SA/Wa 1168/20) ruled about mutual settlements between an investor, general contractor and other contractors. In that case, the general contractor failed to meet the deadlines for construction of a hotel specified in the agreement. The investor took advantage of its contractual right to transfer part of the works to other contractors. The investor issued a debit note to the general contractor for the additional costs of engagement of other contractors. The investor’s doubts concerned the correctness of the settlement. The DAC in Warsaw agreed with the taxpayer, stating that the compensation for the costs of completing the hotel constitutes compensation and it is not payment for providing a service. Consequently, in that case it is justified to issue a debit note not the VAT invoice.
Taxation of profits of limited partnerships in the old regime
Pursuant to the changes in the taxation of limited partnerships that entered into force in 2021 limited partnerships became CIT taxpayers from January 1, 2021 unless they do used the possibility to postpone the entry into CIT taxation until May 1, 2021. The taxpayers doubts concerned the method of taxation of profits generated before the change of regulations, which will be paid out to partners after the limited partnership becomes a CIT taxpayer. The Director of the National Tax Information in the ruling dated March 10, 2021. (no. 0112-KDIL2-2.4011.922.2020.2.MM) concluded that profits generated by a limited partnership before entry into CIT regime (i.e. before 1 January/1 May 2021) are not taxed at the level of limited partnership. The fact that profits will be paid out to partners after entry into CIT regulation is of no significance.
Debt purchase and VAT taxation
The District Administrative Court (hereinafter: DAC) in Kielce in a judgment of November 19, 2020 (sign. I SA/Ke 311/20) ruled that the surplus of the nominal value over the market value of receivables is not a remuneration for the buyer for providing services. In the case, a taxpayer purchased receivables from natural persons and corporate entities via an assignment of receivables. The company had doubts whether the purchase receivables for remuneration constitutes an activity subject to VAT. The DAC in Kielce ruled that acquisition of debt at own risk at a price lower than the nominal value cannot be regarded as a service under the VAT Act. In the opinion of the DAC, the difference between the market price and the nominal price does not constitute a remuneration for the services.
Court of Justice of the European Union: No correction right during tax audit inconsistent with the principle of VAT neutrality
Pursuant to the judgment of the Court of Justice of the European Union (hereinafter: CJEU) of March 18, 2021 (sign. C-48/20),the lack of the possibility to correct an invoice after the commencement of an tax audit results in a breach of the principle of neutrality in VAT, if a taxpayer operates in good faith. In the case, a company carried out business activity consisting of providing fuel cards to other companies. The company issued sales invoices with input VAT believing that it runs VATable business activity. Tax authority during tax audit determined that the services constituted financing the purchase of fuel by means of the cards, i.e. a financial services exempt from VAT. Additionally, tax authority claimed the taxpayer has to pay VAT from sales invoices and not deduct VAT from purchase invoices. Lack of deduction right results from the provisions disallowing for correction of invoices during the tax audit. The CJEU ruled that in the present state of the facts, the lack of right for correction is inconsistent with EU law.
Court of Justice of the European Union: VAT deduction upon correction of intra-Community acquisition of goods
In accordance with the Court of Justice of the European Union (hereinafter: CJEU) judgment of March 18, 2021 (sign. C-895/19), the tax office cannot charge penalty interest if a VAT taxpayer reports VAT on an intra-Community acquisition of goods after three months resulting from supplier’s fault. Verdict is a response to a preliminary question referred by the District Administrative Court in Gliwice. Based on the current wording of the VAT regulations, in the case of reporting intra-Community acquisition of goods after three months, VAT is not neutral. In that case, the due tax must be settled for the period in which the tax obligation arose and the input tax must be reported in the current VAT return. In the position of the CJEU, the Polish regulations of the VAT Act in this case are contrary to EU regulations. The CJEU judgment constitutes the basis for reopening tax or administrative court proceedings.
Split payment mechanism and lease payments
The Director of the National Fiscal Information in the interpretation dated March 26, 2021 (no. 0112 KDIL1 2.4012.644.2020.2.PG) stated that an entrepreneur has the right not to accept payments under the split payment mechanism when this form of payment is not required by the VAT act. In the case, the taxpayer concluded two operating lease agreements (for a truck tractor and for a semi-trailer). In November 2020, the lessee made a split payment mechanism payment for the lease payment invoice. Since that moment, the lessor has been sending reminders for payment of the VAT amount. The lessee argued that in a situation of optional split payment mechanism, the acceptance of payments via split payment mechanism is required. The Director of the National Tax Information was of a contrary view and stated that the contractor has the right to refuse to accept payment via split payment mechanism. The tax authority argued that the use of the optional split payment mechanism is regulated by the principle of contractual freedom. Consequently, payment via split payment mechanism requires the approval of both parties of the transaction.
Tax obligation for design services
The Director of the National Fiscal Information in the interpretation dated March 12, 2021 (0111-KDIB3-1.4012.24.2021.1.IK) ruled that the tax obligation for design services arises at the moment of providing the design documentation to the contracting entity. That moment does not depend on signing the acceptance protocol. In the case at hand, design services were provided by a company involved in the development of wireless telephony base stations. Based on the contractual provisions, the moment the work was completed was determined at signing of acceptance protocol. Later, the remuneration was paid. In the taxpayer’s view, that the VAT obligation arises at this moment. According to the Director of the National Fiscal Information tax obligation for VAT purposes in case of design service arises at the moment of providing the design documentation to the contracting entity. The tax authority argued that the clauses of the service agreement have only supportive function and are only a confirmation that the design service has been performed.
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