Małgorzata Dankowska Partner, Tax Advisor

Tax & Legal Highlights for Real Estate – October 2019

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Transfer of assets of the liquidated company to shareholders does not result in taxable revenue as according to the Article 14a of the CIT Act.

Pursuant to the judgment of the Supreme Administrative Court of 13 June 2019 (ref. no. II FSK 2237/17), the release of assets of the liquidated company to the shareholders does not stipulate the revenue on the part of the company. Article 14a of the CIT Act provides for the recognition of revenue when settling financial liabilities resulting from the conclusion of relevant agreements in the non-cash form. The liquidation transfer of the company’s assets is not governed by the contract, but as a technical action does not result from an earlier financial liability towards the shareholder. In such a situation tax revenue cannot be identified. Otherwise, liquidation of the company would require the creation of cash reserves for the subsequent payment of tax. This is another judgment which strengthens the line of rulings in similar cases.

Transfer of ownership of a trademark as compensation for the compulsory or automatic redemption of shares is a supply of a VAT service

In accordance with the judgment of the Supreme Administrative Court of 8 May 2019 (ref. no. I FSK 1160/14), the transfer of ownership right to a trademark in exchange for redemption of shares constitutes a provision of services under the VAT Act. In the case under appeal, the trade mark to be transferred to the shareholder in exchange for the redeemed shares was used in the economic activity of the company and was also to be used by the shareholder after the transfer of ownership. According to the judges of the Supreme Administrative Court, in such a case there will be provision of services within the meaning of the VAT Act. The provision of services is understood as the transfer of rights to intangible assets, regardless of the form in which it is performed.

The issue of the status of VAT payer in case of land sales

As according to the judgment of the Supreme Administrative Court of 17 April 2019 (ref. no. I FSK 578/17) division of land for further sale does not qualify for the status of a VAT taxpayer. In the case considered it was not possible to prove that the taxpayer took any active measures to conclude real estate transactions. The time as from the purchase of real estate to the sale of individual plots was relatively long and the taxpayer made only a division of land and applied for a decision on zoning. Consequently, the division of real estate for the purpose of its gradual sale is included in the management of the taxpayer’s private assets and does not have any VAT consequences.

The definition of business activity defined in the provisions of the VAT Act may not lead to an interpretation in which each legal activity, payable to the owner, relating to real estate, will be identified with business activity

In accordance with the judgment of the Supreme Administrative Court of 5 March 2019 (ref. no. I FSK 385/17) despite the broad definition of economic activity in the VAT Act, not every payment related to the real estate constitutes a business activity. The case concerned a taxpayer who, in exchange for lease of agricultural real estate, had the costs of agricultural tax covered by a lessee. Due to the fact that the main purpose of the lease was to preserve the agricultural character of the real estate and to keep it in private property, it could not be classified as a use of the property on a continuous basis for profit-making purposes.

There are no grounds to conclude that under the definition of an organized part of an enterprise there is also a requirement to transfer the property on which the business was conducted

Pursuant to the judgment of the Supreme Administrative Court of 7 May 2019 (ref. no. II FSK 1296/17), a set of tangible and intangible assets may constitute an organized part of an enterprise also when it is transferred excluding the real estate on which it operates. According to the SAC, regarding the circumstances of this case, the right to real estate was not a factor determining whether an organized part of the enterprise was transferred. Thus, transferring such a set of assets to the company as an in-kind contribution did not result in the obligation to recognize tax revenue.

Tax base determining mechanism in the event of a company’s takeover whose purpose is to avoid taxation

Pursuant to the judgment of the Supreme Administrative Court of 25 September 2019 (ref. no II FSK 1362/18), the consequence in corporate income tax of a company’s takeover, whose purpose was to avoid or evade taxation, will be to determine the taxable amount contrary to the article 10 item 2 point 1 of the CIT Act (based on the provisions in force u 2018). Consequently, income should be defined as the excess of the acquired company’s assets value over the nominal value of the shares allocated to the shareholders. According to the SAC, in the event of a takeover aimed at avoiding or evading taxation, there is no possibility for determining the tax base according to general principles or by applying the analogy to article 10 item 2 point 2 of the CIT Act.

MF: Reverse charge for advance payment, the outstanding amount to be settled in split payment form

The Ministry of Finance has explained the rules for settling advances received before 1 November 2019, when the sale will take place after this date. Both experts and taxpayers had doubts as how to proceed with the settlement of activities taxed so far according to the reverse charge scheme. Pursuant to the explanations, new regulations in force as from 1 November 2019 will apply to the remaining value of the transaction, therefore the remaining part of payment should be settled in the split payment form.

Assessment of compliance with EU law of the additional tax liability referred to in the article 112b item 2 of the VAT Act – question to the CJEU for a preliminary ruling

By the decision of 3 October 2019 (ref. no I SA / Wr 448/19), the District Administrative Court in Wrocław referred a question for a preliminary ruling whether the article 112b item 2 of the VAT Act complies with the provisions of the VAT Directive, EU treaties and the  proportionality rule. The aforementioned provision stipulates the imposition of 20% sanction on a taxpayer who after the tax control submits a correction of return including the irregularities discovered during the control and settles the outstanding tax liability or reimburses the undue amount of refund. In justification, the court indicated that the sanction should be applied to fraudulent taxpayers, and not in case the settlements were properly corrected without prejudice to the state budget.

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