Tax Highlights
Table of contents:
- The Minister of Finance issued a general interpretation regarding the scope of VAT exemption for residential property rental
- A structure may be taxed as a building but not always
- The moment of introducing invoice is its recording in the tax books of the buyer
- The tax is on the entire company’s building
- Premature termination of a lease agreement does not exclude the possibility of including the unamortized part of an investment in a third-party fixed asset in tax costs
- The service of rental of the hotel facility together with additional services such as cleaning, towels, provision of a baby crib, acceptance of bringing animals to constitute one comprehensive service
- The leaseback is exempt from VAT
- For real estate tax purposes, an opinion of the regional construction supervisory inspector may be required for a building and the structure contained therein
The Minister of Finance issued a general interpretation regarding the scope of VAT exemption for residential property rental
On 8 October 2021, the Minister of Finance issued a general interpretation no. PT1.8101.1.2021, in which he referred to the scope of the VAT exemption under Article 43(1) (36) of the VAT Act. According to this provision, renting or leasing of residential real estate, on one’s account, exclusively for residential purposes or to social rental agencies, are exempt from VAT. It was unclear whether the condition of letting exclusively for residential purposes is fulfilled when the tenant of residential real estate is a business entity whose purpose is further to sublease the leased real estate to third parties to satisfy their housing needs. The Minister of Finance held that a lease of residential real estate provided by an active VAT payer to a business entity that uses the leased real estate for its business activity, e.g., subleases the real estate to other entities for residential purposes, is subject to taxation at the standard VAT rate.
A structure may be taxed as a building but not always
The Supreme Administrative Court in the resolution dated 29 September 2021, ref. III FPS 1/21 resolved that construction which is a building listed in the Building Law, may be taxed as a building if it satisfies the characteristics of a building and its distinguishing feature is the usable area. In practice, the resolution introduces a new assessment criterion. Each time, it will be necessary to assess what parameter distinguishes a given facility, whether it is its usable area or, e.g., its capacity. As the Supreme Administrative Court pointed out, this does not follow in an obvious manner from the wording of the provisions, however, such an approach considers the purpose of the act.
The moment of introducing invoice is its recording in the tax books of the buyer
The Provincial Administrative Court (WSA) in Gliwice, in the judgment dated 27 January 2021, ref. I SA/Gl 1175/20 indicated that it is impossible to accept that an invoice „has entered into legal transactions” when the counterparty refuses to accept it and returns the document delivered to it to the issuer and, as a result of such actions on the part of the counterparty, the issuer has both the original and the copy of the disputed invoice. Recording a VAT invoice in the tax books by the issuer and purchaser is the first and only way it is possible to speak about entering the VAT invoice into legal transactions. In such a situation, the seller could cancel the invoice documenting the construction services, which was not entered into legal transactions.
The tax is on the entire company’s building
The Supreme Administrative Court ruled in two judgments dated 7 October 2021, ref. III FSK 121/21 and III FSK 122/21, that if an entrepreneur entered a building in the fixed assets register, he would pay real estate tax on the entire building, even if he occupied only a part of it. The case concerned owners of a wholesale company who bought a building for their business purposes and decided to expand it. Upon completion of the works, they obtained an occupancy permit, but only for the extended part. They entered the entire property in the fixed assets register but thought that since they were using only part of it for business, they should pay tax only on that part. The Provincial Administrative Court and then the Supreme Administrative Court disagreed with the taxpayer’s standpoint and held that it is irrelevant that the building has not been put to use in its entirety. The critical point is that it exists, and its use has begun.
Premature termination of a lease agreement does not exclude the possibility of including the unamortized part of an investment in a third-party fixed asset in tax costs
An entrepreneur who terminates an office lease agreement early is entitled to include the unamortized part of a third-party fixed-asset investment to tax-deductible costs. Such expenses may constitute tax costs only if they are not returned to the company in any way. This position was presented by the Director of the National Tax Information in a tax interpretation dated 17 August 2021, no. 0111-KDIB2-1.4010. 216.2021.1.AT. The interpretation was requested by a company that, during a coronavirus epidemic, decided, among other reasons due to the spread of remote work, to close several offices.
The service of rental of the hotel facility together with additional services such as cleaning, towels, provision of a baby crib, acceptance of bringing animals to constitute one comprehensive service
The Supreme Administrative Court in the judgment of 23 April 2021, ref. I FSK 1064/18 indicated that additional services such as cleaning, towels, providing a crib, accepting bringing animals do not have any economic significance for the recipient who is accommodated in hotel. They serve only to improve the use of the hotel service. The argument that such services may, in principle, exist separately and may be provided by entities other than the accommodation provider cannot be used. The customer is in a particular place because he decided to rent a house or apartment. Moreover, it is not possible for customers who rent houses and apartments to purchase the additional services from other operators. They may at most not purchase the additional services. At the same time, the assessment that services accompanying the accommodation service is e.g. laundry service cannot be shared.
The leaseback is exempt from VAT
The leaseback is a single comprehensive financial service subject to VAT exemption under Article 43 (1)(38) of the VAT Act. Since it is a transaction of monetary nature, serving exclusively to increase the lessee’s liquidity and the related sale of movable property by the lessee to receive a financial service, it will not constitute a supply of goods for consideration within the meaning of the VAT Act. Sale-and-lease-back is one comprehensive financial service, thus it is irrelevant to assess the legal and tax consequences whether the lease is a finance lease or an operating lease.
For real estate tax purposes, an opinion of the regional construction supervisory inspector may be required for a building and the structure contained therein
Tax authority may ask the building inspection for opinion to determine whether an object located in a building is a structure. If it is found to be a structure, it is taxed regardless of the building itself. The case at hand concerned a company owning buildings containing fixed assets such as a diesel assembly station, a lubricating oil installation, a fuel system installation, and a fume extraction installation. The dispute boiled down to whether these are structures for tax purposes or whether these installations are generally not taxable. The Provincial Administrative Court in Poznań, in a judgment ref. I SA/Po 213/18 held that an expert opinion was sufficient, and there was no need to obtain an opinion from the county building supervision inspector. The Supreme Administrative Court took a different view. It held that one could not base one’s decision solely on an expert opinion. According to the Supreme Administrative Court, the tax authority should have sought an opinion of the regional construction supervisory inspector and clarified all elements of the factual state
Legal Highlights
Table of contents:
- Energy performance certificate as the attachment to each sale agreement
- Buildings closer to cemeteries
Energy performance certificate as the attachment to each sale agreement
In mid-May 2021, on the website of the Government Legislation Centre, a draft act amending the Act on energy performance of buildings and certain other acts („Draft”) prepared by the Minister of Development and Technology was presented. The Project provides among others that an energy performance certificate („Certificate”) shall be an obligatory document for each notarial act consisting in drawing up a notarial deed of a sale agreement or sale of a cooperative ownership right to premises. Failure to provide a respective Certificate would result in a refusal to perform a given notarial deed. The Polish Notaries Association and the National Notary Council were very critical of this idea, pointing out that the sanction of not being able to conclude a sale agreement is disproportionate to the benefits that the obligation to prepare a Certificate for each sale agreement would bring. This obligation would complicate the housing trade, especially in the secondary market. As a result of the criticism presented at the public consultation stage of the Project, the Minister announced withdrawal of his original idea and mitigation of sanctions related to the failure to submit the Certificate. Pursuant to the latest information available in the public domain, the lack of the Certificate is to be noted in the notarial deed and the notary will be obligated to instruct about the fine for the lack of the document. As of the date hereof, the new proposed wording of these provisions has not been reflected in the Draft.
Buildings closer to cemeteries
In mid-September 2021, a new draft of Law on Cemetery and Burial of the Dead („Draft”) was submitted on the website of the Government Legislation Centre. One of the crucial amendments compared to the current legislation involves the liberalization of the requirements on minimum distances for the location of residential buildings from cemeteries. Currently, residential buildings should be located at a distance of at least 150 m from cemetery boundaries, unless certain buildings are connected to the water supply system – in such situation this distance may be reduced to 50 m. Pursuant to the Draft, the minimum distance is to be reduced to 35 m if all buildings within the development are connected to the water supply system. Despite the planned liberalisation of the regulations, local governments are trying to force this minimum distance to be reduced even further. Nevertheless, most experts point out that further reduction of the distance between residential buildings and cemeteries would be dangerous from the perspective of sanitary safety. At the moment, the Project is at the public consultation stage.
