The tax side of real estate. Periodic newsletter for the Real Estate sector.

The basic designation of land in the Local Spatial Development Plan is decisive for determining the nature of the land as a building area – such conclusions arise from the judgment of the Supreme Administrative Court dated 10 November 2021. (case file no: I FSK 575/18).

The case concerned a request for tax interpretation in which the Applicant inquired about VAT taxation of three undeveloped plots of land. According to the LSDP, two of the plots are earmarked for non-public green areas and the third one for a multi-family residential development. The SAC stated that in order for a real property to be recognized as a building area, the primary designation of land in the LSDP is decisive. The additional designation is supplementary and admissible, but it does not modify the basic designation in the LSDP.

“In this respect, it should be noted that the tax authorities – contrary to the SAC- hold that in a situation where the LSDP sets out the permissible designation for development, such plots of land meet the definition of a building area and cannot benefit from the exemption.” – commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

Pursuant to the general interpretation issued by the Minister of Finance on 15 December 2021 (no  DD5.8203.2.2021) regarding the application of the income tax exemption to income generated from participation in the profits of general and limited partnerships which are taxpayers of income tax, the so-called “dividend exemption” is available with respect to general and limited partnerships to the profits generated by these companies from the moment they became CIT taxpayers. The exemption does not apply to entities which are general partners because the regulations in this respect provide for a different mechanism eliminating the “double” taxation of such a partner’s income.

In accordance with the general interpretation dated 9 December 2021 issued by the Minister of Finance (no. DCT2.8203.2.2021) concerning the concept of a controlled transaction of a homogeneous nature, in the case of the so-called indirect transactions with domestic entities, the obligation to prepare transfer pricing documentation arises only with respect to the cost side of the transaction. This is justified by the fact that only in respect of cost transactions, where a receivable is paid, it is possible to determine the actual owner of such receivable. The general interpretation also clarified the previously expressed practical issues of homogeneity of transactions, comparability criteria and transfer pricing verification methods.

“The general interpretation has dispelled frequent doubts arising in practice as to which entities are required to verify the beneficial owner. It is to be welcomed that the scope has been clarified and narrowed with respect to entities paying out receivables.” – commented Szymon Kokot, Tax Advisor at act BSWW legal & tax.

The remuneration paid to cover the costs related to adapting hotels to the standards of a given brand is an indirect tax deductible cost and should be deducted when incurred, i.e. at the time when the amount of payment is entered into the books, and in the case of its reimbursement, the tax deductible cost is adjusted in the period when the corrective invoice is received – position presented in the tax interpretation of 17 December 2021 (no. 0111-KDIB1-2.4010.558.2021.1.SK).

The case concerns three companies, where the Applicant (providing hotel management services) undertook to support two interested parties (lessees of the hotel building) with respect to complying with the standards set by the hotel chain and adjusting the building to the requirements of the hotel brand. If the events specified in the contracts, e.g. termination of the contract, occurred – the interested parties agreed to return the support received.

“The amount of Support Payment is undoubtedly related to the Applicant’s solicitation of potential Interested Parties in order for them to carry out hotel business, and thus is related to the Applicant’s earning of revenue in terms of providing hotel management services to owners or lessees under the concluded HMAs. Therefore, the Support Payment paid by the Company to the Interested Parties may constitute a tax expense. This cost, being related in a general way to the Applicant’s business activities, is an indirect tax deductible cost. It cannot be linked directly to the revenues obtained from the above-mentioned agreements during their duration,” indicated the Director of KIS (National Tax Information Office).

Performing the function of the president of the management board of a company by a person delegated to do so by the parent company and holding shares in the capital structure of the group does not generate a gratuitous benefit on the part of the company – individual interpretation of December 24, 2021 (no. 0111-KDIB1-2.4010.628.2021.1.BD).

“In addition, when the function of a member of the board is held by a person who at the same time holds shares in the capital structure of the group to which the company in which the person serves on the board of directors belongs, no income from gratuitous benefits arises on the part of this company. This is due to the fact that the shareholder (direct or indirect) may obtain certain benefits from the company in the future, including, among others, dividends,” explained the Director of KIS.

Unpaid liabilities of a company existing at the time of its deletion from the KRS register do not generate revenue subject to CIT – tax interpretation of 20 December 2021. (no. 0111-KDIB2-1.4010.503.2021.1.MKU).

The case concerns a company that purchased land for the purpose of conducting a development project. Due to the pandemic, the company decided not to implement the project, sold the land and started the liquidation process. The company had outstanding loans and interest, which had not been paid at the moment of the deletion of the company from the National Court Register. There was also no statute of limitations, cancellation or other extinguishment of these liabilities.

“It should be emphasized that the basis for recognizing tax income should always be the occurrence of a real gain on the part of the taxpayer. Such a gain on the part of the Applicant will not occur. At the moment of deleting the Applicant from the register of entrepreneurs of the National Court Register, the Company will cease to exist. Therefore, it will be impossible to attribute to it – as an entity no longer existing – any gain, and thus any revenue on this account. To sum up, the value of the Company’s unpaid liabilities (loans and interest) existing as at the date of completion of liquidation and deletion of the Company from the register of entrepreneurs of the National Court Register will not constitute taxable income for the Company,” commented the Director of KIS.

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Need any assistance? Got any questions? Call or e-mail us

Małgorzata Wąsowska
Tax Advisor / Partner / Head of Tax
+48 691 477 047
malgorzata.wasowska@actlegal-bsww.com

Jakub Świetlicki vel Węgorek
Tax Advisor / Senior Associate
+48 505 703 768
jakub.swietlicki@actlegal-bsww.com

Szymon Kokot
Tax Advisor / Trainee Attorney-at-law / Associate
+48 691 557 507
szymon.kokot@actlegal-bsww.com

Get the RET right

The tax side of real estate. Periodic newsletter for the Real Estate sector.

November 2021

A spin-off involving the division between the main and additional business activity, accompanied by the lease of a property to an affiliated entity, is not artificial in nature and has a specific economic purpose, according to the ruling issued on November 04, 2021 by the Supreme Administrative Court (case files no. 573/19).

The company’s object of business was the transport of goods, vehicle repairs, and the sale of automotive parts. In relation to the implementation of a new business strategy, the company decided to separate its main business, i.e. transport services, from other operations, including vehicle repairs and lease of real estate to the parent company. The tax authority considered such actions to be artificial in nature and aimed exclusively at securing a tax advantage, i.e. reduction of revenues by the costs of the lease rent. The Supreme Administrative Court decided, however, that there is, in fact, no tax advantage because the lease rent will act as the cost for the parent company, and as the revenue for the newly-created company, meaning that there is no valid ground to refuse to issue an advance tax ruling.

VAT obligation emerges upon execution of a report covering the public tender for the sale of real property, according to the advance tax ruling issued on November 22, 2021 by the President of the National Fiscal Information (0111-KDIB3 1.4012.831.2021.1.AB).

The company had doubts as to when the VAT obligation emerges in relation to the payment of a bid security towards the real estate price. The company believed that such obligation is created on the real estate supply date, i.e. upon execution of the sale agreement in a notarial deed. The tax authority held a different view.

“In the case at hand, the tax obligation arising from the bid security towards the sale of real estate emerges when the purchaser of the property is selected as part of the procurement procedure, i.e. when a public tender report (discussed in §10 section 1 of the Regulation) is signed. It needs to be noted that when the winning bid is selected, the bid security is credited towards the sale price, i.e. it becomes an advance towards the future supply, which entails a tax obligation in line with article 19a section 8 of the Act. Consequently, when the property acquirer is selected and the public tender report is executed, the established bid security creates a tax obligation with respect to such public procurement procedure.” – concluded the President of the National Fiscal Information.

Irrespective of whether the Ministry of Finance publishes information about taxpayers whose revenues exceed EUR 50 million, any entity that goes beyond that threshold is obliged to publish its tax strategy until December 31, according to the advance tax ruling issued on November 17, 2021 by the President of the National Fiscal Information (0111-KDIB1-1.4010.363.2021.2.NL).

The company had doubts as to the new regulations concerning the obligation to publish tax strategies, especially a situation in which the revenue is over EUR 50 million but the company is not listed by the Ministry of Finance. For the President of the National Fiscal Information, it is perfectly clear that the revenues form the deciding factor, which means that the company is obliged to announce its tax strategy.

“In relation to the obligation to prepare and publish an announcement on the tax strategy for fiscal year 2020 until December 31, 2021, it needs to be noted that if the applicant generated revenues in 2020 in excess of EUR 50 million (converted into PLN on the basis of the average exchange rate published by the National Bank of Poland on the final business day of the calendar year preceding the one in which taxpayers’ individual data is published), then – regardless of whether the applicant’s data is published in the Public Information Bulletin by the minister responsible for public finance or not – the applicant shall be obliged to publish the information referred to in article 27c of the CIT Act at its website, and to communicate such information to the competent tax office until the end of the twelfth month after the end of the fiscal year, i.e. until December 31, 2021. For the purposes of the 2020 tax strategy, only the revenues generated in excess of EUR 50 million in 2020 will be relevant.”

“We fully endorse the ruling issued by the Supreme Administrative Court – in light of the unequivocal provisions of the PIT Act, there should be no doubt whatsoever that the amount of the contested VAT return can increase the initial value of a fixed asset,” commented Małgorzata Wąsowska, Head of Tax and Tax Advisor at act BSWW legal & tax.

The real property’s initial value may be increased by VAT whose deduction has been questioned by the tax authority, according to the ruling issued on November 28, 2021 by the Supreme Administrative Court (case files no.  II FSK 219/19).

The enterprise acquired several buildings and structures, and then applied for a VAT return in relation to that acquisition. Tax authorities challenged the right to deduct VAT, arguing that the properties had been purchased in order to secure a tax advantage. Tax authorities and the Provincial Administrative Court in Gdańsk denied the possibility to include the amount in question in the initial value of fixed assets. However, the Supreme Administrative Court decided otherwise, noting that in such case, the taxpayer had never even held the right to deduct VAT, and consequently, the entire sale price plus VAT (which can be subject to depreciation) should be regarded as the acquisition price and the initial value of the buildings / structures.

The remuneration of the financial department employees and members of management board can be included in the initial value of a fixed asset, as long it is related directly to an investment project, and can be unambiguously determined and separated to the extent related to such project, according to the advance tax ruling issued by the President of the National Fiscal Information on November 12, 2021 (0111-KDIB2-1.4010.386.2021.1.AR).

The company constructs and leases residential apartments and commercial premises. It has a finance department and a management board, whose employees/members perform both general tasks and ones related specifically to a given real estate project. Tax authorities believed that the remuneration of employees, to the extent related directly to a fixed asset, should increase its initial value, rather than be recorded as costs on an ongoing basis.

“The deciding factor for the categorization of a specific expense as a cost of fixed asset generation is the possibility to assign such expense to a specific investment project, i.e. the generation of the fixed asset. (…) The costs of remuneration of the finance department employees involved in tasks related directly to the project should be divided into investment costs (which increase the initial value of fixed assets) and operating costs (in a given period). (…) Among the costs of generation of a fixed asset, the applicant is / will be able to include the aforesaid remuneration of management board members who supervise the investment project, together with other fees linked to such remuneration, i.e. social insurance contributions and payments towards employee capital plans, as long as variable remuneration only concerns the management board members’ actions that have a direct impact on fixed asset generation and the successful completion of the investment project, and the applicant is able to separate the relevant part of the remuneration.”

Real estate tax about to rise in Warsaw – the City Council has adopted new rates for 2022

The biggest rise will be recorded by the real estate tax rate related to business operations, from PLN 24.84 in 2021 to PLN 25.74 in 2022 (up by PLN 0.90). The rate applicable to residential units will increase, as well, from PLN 0.85 in 2021 to PLN 0.89 in 2022. Here, the rise is similar to the previous years (in 2019, the rate was PLN 0.79, while in 2020, it reached PLN 0.81).

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Need any assistance? Got any questions? Call or e-mail us

Małgorzata Wąsowska
Tax Advisor / Partner / Head of Tax
+48 691 477 047
malgorzata.wasowska@actlegal-bsww.com

Michał Brzozowicz
Tax Advisor / Attorney-at-law / Senior Associate
+48 665 667 110
michal.brzozowicz@actlegal-bsww.com

Jakub Świetlicki vel Węgorek
Tax Advisor / Senior Associate
+48 505 703 768
jakub.swietlicki@actlegal-bsww.com

Szymon Kokot
Tax Advisor / Trainee Attorney-at-law / Associate
+48 691 557 507
szymon.kokot@actlegal-bsww.com