Tax & Legal Highlights for Real Estate – July 2022

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Tax Highlights

  1. The acquisition, rental and exploitation of real estate does not lead to the creation of permanent establishment for German company in Poland
  2. It is not possible to transfer the undepreciated value of the old office building towards the initial value of the newly constructed building
  3. Premises for VAT taxation of the supply of plots of land resulting from the division of a larger plot of land
  4. Obligations in connection with the exploitation of photovoltaic panels by municipal units are borne by the municipality
  5. Assignment of the of developer agreements for the purchase of residential premises constitutes a supply of goods within the meaning of the VAT Act
  6. For the calculation of the period referred to in Art. 22 sec. 4a of the CIT Act, the time in which the shareholder held 100% of the shares in the capital of the acquired company is not included

The acquisition, rental and exploitation of real estate does not lead to the creation of permanent establishment for German company in Poland

In the tax ruling of 30 June 2022, Director of the National Tax Information stated that the activities undertaken by the German company, consisting in the acquisition, renting, exploitation and management of real estate, aimed at realizing income from real estate located in Poland, do not create the permanent establishment for the German company.

Key financial decisions with regard to real estate are made in Germany. The company does not have an office in Poland and does not employ any employees, while the current affairs of the real estate are outsourced to the professional entity. Property managers are not responsible for the rental process and the search for potential tenants. Determining the financial conditions and conducting negotiations with potential tenants is the key subject of the company’s activities.

It is not possible to transfer the undepreciated value of the old office building towards the initial value of the newly constructed building

In the judgment of 5 July 2022, file ref. II FSK 2978/19 Supreme Administrative Court stated that it was not possible to settle the undepreciated value of a fixed asset by including it in the initial value of a new fixed asset. Thus, the undepreciated value of an old building and the costs of its demolition should not be treated in the same way.

The court stated, however, that since the liquidation of fixed assets is not related to a change in the type of activity, the loss on this account, in the amount of the undepreciated value of fixed assets, should be entirely a direct and one-off tax deductible cost.

Premises for VAT taxation of the supply of plots of land resulting from the division of a larger plot of land

Provincial Administrative Court in Gdansk, in the judgment of 5 July 2022, file ref. I SA / Gd 77/22 stated that the sale of a divided plot of land, purchased several years ago, does not constitute a sign of the taxpayer’s business activity or the activities of the VAT payer. It is a sale of private property. The development of the plot took place several years ago, and it was planned for a single-family house, not for many houses. Undertaking activities that comes down to dividing the plot into several smaller plots in order to increase their attractiveness, in order to find a buyer for them, will not be a decisive factor for running a business. In this state of facts, it should be assumed that it was a private sale, which did not result in an obligation to pay VAT.

Obligations in connection with the exploitation of photovoltaic panels by municipal units are borne by the municipality

Director of the National Tax Information in the tax ruling of 28 January 2022, file ref. 0111-KDIB3-3.4013.193.2021.2.PJ, stated that the obligations of: registration application, submission of excise duty declarations, payment of excise duty and keeping quantitative records of the electricity consumed rest on the commune, which provides electricity to its organizational units kept in the form of municipal entities (organizational units without legal personality). Photovoltaic panels are installed on buildings under the permanent management of these units and their total capacity exceeds 1 MW.

Assignment of the of developer agreements for the purchase of residential premises constitutes a supply of goods within the meaning of the VAT Act

Provincial Administrative Court in Bydgoszcz in the judgment of 28 June 2022, file ref. I SA/Bd 243/22 pointed out that the method of VAT taxation of the assignment resulting from the preliminary and developer agreement should be determined by the economic and purposeful, and not civilian, criterion of the concluded transactions. Provincial Administrative Court pointed to the jurisprudence of administrative courts, according to which assignment agreements do not contain independent goals. They are only indirect activities on the way to the delivery of real estate, and the conclusion of these contracts has the same economic direction as the sale of real estate.

For the calculation of the period referred to in Art. 22 sec. 4a of the CIT Act, the time in which the shareholder held 100% of the shares in the capital of the acquired company is not included

Director of the National Tax Information in the tax ruling of 7 December 2021, file ref. 0111-KDIB1-1.4010.416.2021.2.BS indicated that the two-year period entitling the shareholder to exemption from withholding tax on the payment of dividends by the company does not include the time when the shareholder held 100% of the shares in the capital of the acquired company.

The position of the tax authority was upheld by Provincial Administrative Court in Gdansk. The court stated that the provisions on tax reliefs should be interpreted strictly, as they are exceptions to the principle of universality of taxation. Since the acquired privileges and obligations as part of the succession should be applied to the acquiring company itself, and not its shareholder, the period of uninterrupted holding of a minimum of 10% of shares in a capital company which pays income from participation in the profits of legal persons cannot be combined with the period of holding a minimum of 10% of shares in the acquired company.

 

Legal Highlights

  1. Draft Act amending the Act – Notary Public Law and certain other acts – new powers for notaries in the area of land registers and payment orders
  2. New development law – new information duties

Draft Act amending the Act – Notary Public Law and certain other acts – new powers for notaries in the area of land registers and payment orders

At the end of May 2022, a draft bill amending the Act – Notary Public Law and certain other acts, brought by the Minister of Justice, appeared on the website of the Government Legislation Centre. It provides for a number of changes, most notably the empowerment of notaries to issue payment orders and make entries in land and mortgage registers.

According to the proposed draft, a notary who has been running an office for at least three years and against whom there has not been a final disciplinary ruling, will be entitled to apply to the Minister of Justice for a certificate authorising him or her to make entries in the land and mortgage register and issue notarial orders for payment.

According to the draft, a notary will be able to recognise in the land and mortgage registers the ownership of real estate related to the establishment of separate ownership of premises and the entry of a mortgage encumbering the separate ownership of premises. It is mainly about establishing new land and mortgage registers by separating the premises property from the developed land property when the vendor is an entrepreneur. Such a change is intended to speed up land and mortgage register proceedings, in particular for individuals who spend months waiting for their applications to be processed and pay increased mortgage instalments. Entrusting land and mortgage register entries to notaries is to be an alternative solution, depending on the will of the party. The solution for entries in land and mortgage registers by the courts will still be maintained. Consequently, it will be the citizens and other participants in legal transactions who will have the right to choose how these rights are entered in the land and mortgage register.

In addition to making entries in the land and mortgage register, the draft also envisages equipping notaries with the power to issue notarial orders for payment. A notarial order for payment will be able to be issued if the legitimacy of the claimed claim is beyond doubt, in particular if the asserted claim is proven by an official document attached to the application, a bill accepted by the debtor or a debtor’s call for payment and a written statement of acknowledgement of debt by the debtor. The amount of the claim that can be substantiated by a notarial order for payment is PLN 75,000, which corresponds to the amount determining the material jurisdiction of the district courts. An application for a notarial order for payment will be able to be submitted on an official form, the model of which will be specified in a regulation of the Minister of Justice. A notary will be able to issue no more than 200 notarial payment orders per month.

However, the draft announces not only greater powers for notaries, but also greater control over them. According to the Ministry of Justice, in order to increase the protection of citizens’ rights, it is necessary to increase the supervision of notaries, as they are to be entrusted with tasks that have so far been reserved only for courts and court registrars. In order to supervise notaries, a new body is to be established – the Disciplinary Ombudsman of the Notary Public, who, according to the added Article 70a of Act on Notary Public Law, 'conducts disciplinary investigations, submits motions for the initiation of disciplinary proceedings, acts as a prosecutor before disciplinary courts in cases in which he or she has submitted a motion to initiate disciplinary proceedings, and may join as a prosecutor at any stage of disciplinary proceedings, including the submission of appeals’. The Ombudsman is to be appointed by the Minister of Justice for a five-year term.

The draft is currently at the opinion stage.

New development law – new information duties

On 1 July 2022, the Act on the Protection of the Rights of the Purchaser of a Dwelling or Single-Family Home and the Developer Guarantee Fund of 20 May 2021 (hereinafter „the Act”) entered into force. The Act replaced the previous piece of legislation – in effect since 2011. Prior to its entry into force, there were repeated requests to postpone its effective date so that developers could prepare for the upcoming changes. It was argued that developers additionally have to contend with rapid price changes in the market, low supply, inflation and, consequently, low demand for newly built apartments. However, according to the authors of the Act, the same arguments justify that the Act should enter into force without delay, in order to further protect housing buyers in difficult market conditions. In fact, the Act significantly strengthens the position of buyers, while on the other hand it imposes a number of new obligations on developers.

The Act expands existing and introduces new disclosure obligations that a developer must fulfil before entering into most development agreements, including a reservation agreement with a purchaser. First, the developer must prepare an information prospectus, the content of which includes detailed data and information on the legal and financial situation of the developer and the development project or investment task. The prospectus should be prepared in accordance with the model that is set forth in the appendix to the Act, and should include basically all factual and legal circumstances that may affect or restrict the buyer’s use of the property. Secondly, the prospectus should contain data arising from and relating to certain local laws, administrative decisions or other administrative acts relating to the use and development conditions of neighbouring land. The prospectus should also include a schedule for the project or investment task, with the Act mandating that the project be divided into four to ten stages. The ability to disburse funds from escrow accounts depends on the indications of the prospectus. As a result, developers will be forced to modify the information on the progress of construction on an ongoing basis in order not to expose themselves to financial deadlock or even loss of liquidity, but also to sanctions related to the right to withdraw from the contract in case of its inconsistency with the information provided by the developer in the prospectus or failure to update this information. Importantly, both the prospectus and its updates must be available in a durable medium, and are an integral part of the reservation or development agreement. In addition, providing false information in the prospectus or concealing it is also subject to criminal liability.

Given the significant expansion of the catalogue and scope of the information contained in the information prospectus, the right to withdraw in the event that the information contained therein is inconsistent with the contract or the developer fails to update such data also takes on new significance. Linking the right of withdrawal to inaccurate and broadly defined information obligations can lead to abuse and attempts to circumvent the new regulations. Despite its recent entry into force, the Act already carries a lot of controversy and calls for changes to the solutions it contains.