Tax Highlights
Table of contents:
- Problematic construction devices
- The general anti-avoidance rule despite subsequently obtained benefits may apply only to activities after 15 July 2016
- SLIM VAT 3 to be consulted later this year
- Changes DTT between Poland and the Netherlands
- The application of the objective exemption to revenues generated by German investment funds
Problematic construction devices
According to the judgment of the Provincial Administrative Court in Białystok of 3 November 2021, file ref. no.: I SA/Bk 414/21, one cannot analyze the function of devices connected with construction facilities without referring to the place where they are installed.
The above judgment concerns the interpretation of provisions on real estate tax. In a June 2021 request for an individual tax ruling, the applicant asked whether fuel and gas pumps were taxable as structures. According to the applicant, they were technical devices not subject to real estate tax as structures. Only the building parts or foundations would be taxed.
The authority took the opposite view of applicant standpoint, and therefore the applicant challenged that decision. However, the Provincial Administrative Court dismissed the applicant’s complaint. In the court’s view, the function of equipment and structures constitutes an organizational and technical whole for which a common basic purpose is intended. Depriving the whole of any of its components would deprive the whole of the possibility of performing its essential function. Consequently, the Provincial Administrative Court stated in its ruling that it is necessary to pay real estate tax also on such facilities.
The problem of property tax on structures does not apply only to petrol stations. It is also doubtful whether wind power stations, ski lifts, free-standing and underground garages, advertising boards, mobile telephony transmitting stations, transformers or power poles, among others, are subject to the tax.
The general anti-avoidance rule despite subsequently obtained benefits may apply only to activities after 15 July 2016
The title view was presented by the Supreme Administrative Court in the judgments of 25 November 2021, ref. II FSK 669/19 and II FSK 670/19. The presented judgments concerned the activities of a development company.
They concerned a developer company which establishes special purpose vehicles to carry out specific projects. The developer company itself has protection rights for trademarks and grants licenses for them to its SPV. The marks were developed in the ‘90s and registered with the Patent Office in 2013 by the limited partnership. Subsequently, the marks were sold to a limited liability company subsidiary, which was transformed into a joint stock company in 2015 (the development company). The seller was not a CIT taxpayer in 2013, and subsequent conversions did not result in taxation of the income from the sale of the signs. In 2018, the company applied for individual tax ruling seeking to confirm whether it could continue to depreciate the signs.
The company asked whether article 16(1)(64a) of the CIT Act applies to depreciation write-offs made by the company on its trademark protection rights and also whether does article 16(1)(73) of CIT Act refer to licence fees connected with the use of trademarks incurred by partnerships in which the company is a partner.
The Director of the National Tax Information stated, however, that this was an optimization scheme so asked the Head of the National Revenue Administration for an opinion on whether an anti-avoidance rule could be applied in this case. The Head of the NRA stated that there was a justified assumption that this was the case, as a consequence of which the Director of the NTI refused to issue an interpretation. The Provincial Administrative Court disagreed with the above ruling. That matter was later confirmed by the Supreme Administrative Court.
In the opinion of the Council for the Prevention of Tax Avoidance, it is inappropriate to interpret the moment of obtaining a benefit as the moment of performing an action. In view of the recent intensification of clause proceedings by tax authorities, the above-cited rulings are very important.
SLIM VAT 3 to be consulted later this year
The Ministry of Finance has announced that the next business simplification package SLIM VAT 3 will be consulted later in December 2021. The SLIM VAT 3 package is a law introducing the National System of e-Invoices.
According to the introduced changes, the use of e-invoices will be optional in 2022, it will be next to paper invoices and electronic invoices one of the acceptable forms of documenting sales, while from 2023 e-invoices will become obligatory for all VAT payers, which will require the prior approval of EU authorities.
E-invoices would become an additional stimulus for the Polish economy. New form of the invoices would also play a major role in the fight against VAT fraud as currently the most technologically advanced tool for this purpose. With mentioned changes it will be possible to detect tax crimes in just a few weeks. According to Deputy Minister Sarnowski, the introduction of e-invoicing is expected to halve the VAT gap to 5% within a few years.
Another positive aspect of this solution is the fast refund of input VAT. The idea is that taxpayers who use e-invoices will receive VAT refunds one-third faster – within 40 days instead of 60 days. E-invoices will not be exposed to destruction because they will remain in the MF database and will be stored there for 10 years. Moreover, the assumption is that a taxpayer issuing e-invoices will not have to send the Single Audit File for Invoices Control File (JPK_FA) at the request of the tax authorities.
Changes DTT between Poland and the Netherlands
On 22 November 2021, the President of the Republic of Poland signed the Act of 14 October 2021 on the ratification of the Protocol between the Republic of Poland and the Netherlands amending the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and the Protocol signed in Warsaw on 13 February 2002.
The purpose of the Protocol is to adjust the content of the abovementioned convention to the changes which occurred in the political and economic situation of Poland. The changes also result from the need to evaluate the provisions concerning the avoidance of double taxation in bilateral relations due to new models developed in this respect by the OECD, in particular the BEPS project.
For the real estate market the most important provision concerns introduction of the so-called „real estate clause” to the DTT. The clause provides for taxation of profits from transfer of shares of companies as well as property rights similar to shares in other entities, such as partnerships or trusts, when the value of assets of such entities derives mainly from real estate. Currently such gains are taxed only in the country of tax residence of the transferor. After the changes, taxation will be possible in the place of location of the real estate. This will be possible if at any time during the 365-day period the value of the shares or other similar rights in the subject entity was derived at least 75% directly or indirectly from real estate assets.
As the ratification notes between countries have not been exchanged by the end of September 2021. Effectively, this means that the protocol introducing the real estate clause will apply for tax years, periods and events occurring from January 1, 2023.
The application of the objective exemption to revenues generated by German investment funds
A series of judgments issued by the Supreme Administrative Court on 25 November 2021 (ref. II FSK 470/19, II FSK 862/19, II FSK 813/19, II FSK 1176/19, II FSK 1269/19) confirmed that the revenues of investment funds with its seat in Germany are covered by the exemption from income tax in Poland, provided they are derived from investments made in Poland through limited liability companies.
The approach of the tax authorities which has been represented so far, excluded the German funds from the entities which could benefit from the tax exemption in Poland according to the rules provided for the Polish funds.
In the abovementioned judgments, the Supreme Administative Court definitively challenged the previous view of the tax authorities. It stated that the potential possibility of investing through a limited partnership does not eliminate the tax exemption in Poland in a situation where on the Polish market the fund actually receives revenues from investments in limited liability companies, which are also allowed for Polish investment funds.
Supreme Administrative Court stated that it cannot be expected that for tax exemption purposes, the legal status of investment funds based in other EU countries will be identical to Polish funds.
In the opinion of the court, the differences raised by the authority with respect to the scope of permissible investments of the foreign fund cannot be the basis for questioning the exemption from income tax in Poland of such income which is exempted if earned by Polish funds.
Legal Highlights
Table of contents:
Property appraisal for the road
The Supreme Administrative Court examined the cassation appeal of the voivode against the verdict of the Voivode Administrative Court in Gdańsk of 22 December 2020, file ref. no. II SA/Gd 616/20 in a case regarding the Commune’s complaint against the Voivode’s decision on compensation for expiry of the right of perpetual usufruct. The WSA, referring to art. 134 sec. 3 of the Act on Real Estate Management of 21 August 1997 (Journal of Laws of 2021, item 1899, as amended) („UGN”), indicated that for compensation purposes, the value of the property is determined according to its current use, if the use of the property, consistent with the purpose of expropriation, does not increase its value. In the WSA’s opinion, it was overlooked that, despite the fact that the valued plot of land was included in the local zoning unit and its designation as housing and services, the plot was in fact a road and, as a result of the decision to authorise the execution of a road investment („ZRID”), a road was laid out on it. Despite the fact that the plot was included in a planning unit for residential and service uses, its actual use is for communication, which is not excluded by the plan, as road infrastructure exists in every planning unit.
The Voivode filed a cassation appeal against the above judgment, indicating, inter alia, objections to the correctness of the valuation made.
In its judgment, the Supreme Administrative Court interpreted the provisions constituting the basis for determining compensation for property expropriated for a road under the ZRID decision and determined that whenever property taken over by a municipality or the State Treasury was earmarked for a road on the day the ZRID decision was issued, the valuation of this property constituting the basis for determining compensation should be made on the basis of transaction prices of road real estate – i.e. property acquired for road investments. However, it also pointed out that in the light of the principle of benefit resulting from Article 134, sections 3 and 4 of the UGN, there are no grounds for automatic acceptance of the road real estate prices as having priority over the prices of properties taking into account the current (previous) manner of use, as it is necessary to establish which prices are more beneficial for the expropriated party.
Clarity in the proceedings on the zoning permit
On the basis of the act of 17 September 2021 amending the act on Construction Law and the act on local planning and development (“Act”), which, among others, allows for the development of single-family houses with a built-up area of up to 70 m2 without the need to obtain a building permit, the legislator decided to adapt clear criteria and rules for establishing the analysed area, which should be taken into account by the competent administrative authority in the course of the establishment of requirements for new development in the course of issuing the zoning permit pursuant to the act on local planning and spatial development of 27 March 2003 („Act on Local Planning”). For many years, the manner of determination of the analysed area has raised many practical doubts due to unclear provisions of the regulation (the executive act to the Act on Local Planning”). This issue has often been the basis for challenging the zoning permit by alleging that the analysed area was not properly determined. Even in the jurisprudence of administrative courts, three lines of jurisprudence emerged, which interpreted the way the analysed area was determined differently. This lack of clarity was met with a reaction from the legislator that clearly indicated in the Act that the area to be used as the basis for determining the development and construction conditions for the future construction facility is to be an area no smaller than three times the width of the front plot of land, but no smaller than 50 metres. The front of the plot of land should be understood as that part of the boundary of the building plot which is adjacent to the public road or internal road from which the main exit to the plot takes place. It seems that this change will allow to avoid practical problems appearing at the stage of issuing zoning permit as regards designation of the analysed area. The described change is to enter into force as of 3 January 2022.
