Real estate taxpayer in the case of land lease in perpetual use
In the judgment of July 1, 2021 (no. III FSK 3145/21), the Supreme Administrative Court (hereinafter: SAC) recognized the perpetual usufructuary as a real estate taxpayer also in the case of the constructions erected by the lessee. The SAC drew attention to several issues. First, the buildings and structures were erected by the tenant with the consent of the perpetual usufructuary. Secondly, the issue of recognizing a tenant or perpetual usufructuary as an owner has already been resolved in jurisprudence. According to the jurisprudence, perpetual usufructuary is acknowledged as the owner of the building erected by the lessee on the land given for perpetual usufruct. Moreover, SAC also pointed out that tax obligations and issues related to the ownership of buildings and structures may not be modified by the parties by contractual provisions under a civil law contract, as they result from mandatory provisions of law.
Remuneration for the expiration of the contractual mortgage is of compensatory nature not subject to vat
The Director of the National Fiscal Information, in the individual interpretation of July 9, 2021 (no. 0113-KDIPT1-3.4012.237.2021.2.MJ), referred to the VAT treatment of the remuneration obtained for the expiration of contractual mortgage. The tax authority concluded that the amount paid to the company on the basis of the local government decision concerning the expiry of the mortgage established on the real estate fulfils the function of compensation which is not included in the catalogue of activities subjects to VAT. The case concerned a preliminary real estate sale agreement to be taken over by the State Treasury, which was secured by the parties by establishing a mortgage. Before signing the final sale agreement, the local government awarded the property compensation. The company received part of the compensation, for the expiry of the contractual mortgage established on the property. The seller received the second part of the compensation amount by way of handing over the property. The authority confirmed the company’s standpoint that the amount paid to the company serves as a compensation. The compensation is intended to indemnify for the damage incurred to the company due to failure to comply with the terms of the preliminary sale agreement and failure to sign the final sale agreement and, consequently, the amount received does not constitute remuneration for any service.
Real estate tax in the case of student houses
The Voivodship Administrative Court in Gliwice, in its judgment of July, 14 2021 (no. I SA / GL 487/21), judged regarding the property tax rate for student houses. Majority of the space was designated for residential rooms, which the company rented to students. The remainder were rooms other than living quarters. The company claimed that it could apply a significantly lower real estate tax rate to residential space. Both the interpretative body and the court of first instance claimed that the whole building is used by the company in the field of rental business. Consequently, it should be stated that the building is related to the conducted business activity and should be fully subject to real estate tax at a higher rate, provided for buildings or parts thereof related to running a business, and for residential buildings or their parts used for business activities.
Investment property without amortization?
The project of tax changes as part of the so-called Polish Deal deprives real estate investors, among others, property depreciation. The introduced change to art. 15 sec. 6 of the CIT Act limits the amount of tax depreciation write-offs not only to those made on the basis of the maximum statutory rates, as it has been so far, but also to accounting write-offs. In practice, for commercial investors, this means a choice between the possibility of paying out dividends to investors from the company’s accounting profit and a tax shield on depreciation write-offs. This is due to the use of separate categories of individual assets by the balance sheet and tax law. In the balance sheet law, there is a category of long-term investment, which is often measured in the fair value model, while in the tax law there is no such category. Therefore, irrespective of the fluctuations in the value of real estate in the fair value model, the company will not be able to depreciate real estate for tax purposes and will recognize the cost of acquisition only upon sale. Developers preparing build-to-sell projects will generally not be affected by these changes, but long-term investors will be deprived of current costs for many years. However, at that time they will incur modernization expenses, the recognition of which will also postpone until the property is sold. The legislator also plans to completely eliminate the possibility of depreciation of all buildings and residential premises, the cooperative ownership right to a dwelling and the right to a single-family house in a housing cooperative, regardless of the established model of balance presentation, which in turn will hit investors in the build-to-rent sector.
Changes in the limitation of debt financing costs
The current regulations on the limits of debt financing costs give rise to numerous disputes between taxpayers and tax authorities. The tax authorities restrictively interpret the current regulations, stating that the surplus of debt financing costs may be classified as tax deductible costs in the amount of PLN 3 million or 30% of tax EBITDA. Taxpayers challenged this interpretation in the administrative courts, arguing that the limit should be calculated as a sum of PLN 3 million and 30%. Voivodship Administrative Courts in numerous judgments confirm the position of taxpayers. The project of the Polish Deal will clarify the issue – unfortunately to the detriment of taxpayers According to the project, the limit of the excess debt financing costs will be either PLN 3 million or 30% of tax EBITDA, depending on which of these ratios will be higher.
Tax settlement of commissions
In the judgment of August 3, 2021 (no. II FSK 486/21), the Supreme Administrative Court decided that even when the commission for granting the loan is repaid periodically, the lender is obliged to recognised revenue in the total amount of commission at the moment of granting the financing. In the justification, the judge indicated an analogy to the preparation fee, which is also settled at the time of signing the contract. Moreover, the judge noted that dividing the commission payment into instalments is a contractual issue which cannot affect the moment when the tax revenue arises.
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