1. Fit-out sometimes settle by one-time inclusion in the costs
2. Change of regulations regarding transfer pricing documentation
3. New regulations regarding aspects of financing real estate investments
4. No impact of construction receipt on real estate tax

1. Fit-out sometimes settle by one-time inclusion in the costs

According to the individual interpretation of the Director of the National Fiscal Information of November 8, 2018, reference number 0111-KDIB1-1.4010.359.2018.1.ŚS for income tax purposes, the dismantling of the equipment along with the adaptation of the area for rent can be included at one time in the tax deductible costs since it is a renovation.

According to the presented state of facts, the company owning the shopping center concludes lease agreements regarding commercial areas, on the basis of which it also adapts the given space to the needs of the new tenant. In the event of termination of the contract, the company restores the premises to the original condition and then adjusts it for the next tenant. It is often necessary to dismantle technical parts, partition walls or remove equipment. However, it is not possible to allocate expenses to specific parts of the work.

The works consisting of adapting and equipping the premises for the needs of the first tenant increase the initial value of the fixed asset in the form of a shopping center. However, later works consisting of the restoration of the surface to the original condition and preparation for the next rental, as a renovation works should be settled by a one-time inclusion in the costs. The reason for this, is the fact that this type of work does not change the function or original purpose of the premises, so it should not be treated as improvement.

The tax authority agreed with the position of the company, that works aiming at adapting the premises to the needs of the next tenant should be settle by one-time inclusion in the tax deductible costs.

1. Change of regulations regarding transfer pricing documentation

From  January 1, 2019, amended regulations will be in force for documenting transactions between related parties. First of all, there will be new documentary thresholds for the so-called local documentation, i.e. PLN 10 million for transactions on intangible assets and financing, and PLN 2 million for other transactions.

In practice, this may reduce the documentation obligations, in particular for small and medium-sized taxpayers. At the same time, the above values ​​will not depend on the taxpayer’s income and expenses, as it is currently. However, in the case of transactions carried out with entities located in the so-called tax havens a lower threshold of PLN 100,000 will apply.

Exceptions to the obligation to prepare transfer pricing documentation are also introduced. The following transactions, among others, will be exempt from this obligation:

• concluded by related entities having their domicile, registered office or management in Poland in a given tax year, in which each of these related entities does not benefit from exemptions and did not suffer tax loss,
• covered by APA,
• permanently not included in the tax revenues and costs,
• concluded between companies forming a tax capital group.

At the same time, from January 1, 2019, new rules for the preparation of group documentation will also apply. This obligation will apply to entities that fulfill three conditions cumulatively, i.e. (i) will be obliged to prepare local documentation, (ii) will belong to the capital group for which consolidated financial statements are prepared and (iii) will belong to the capital group which consolidated revenues exceeded PLN 200 million in the previous financial year.

The amendment also sets new deadlines for the preparation of documentation, and so for local documentation it will be 9 months from the end of the tax year, and for group documentation – 12 months from the end of the tax year.

1. New regulations regarding aspects of financing real estate investments

From January 1, 2019, a real revolution awaits taxpayers in connection with the commencement of a number of changes, including those regarding the financing of the commercial real estate industry. The most important among them are:

• Restrictions on the deductibility of debt financing costs (the so-called thin capitalization) – in accordance with the current regulations on December 31, 2018, the transition period in which old regulations were still in force with respect to financing granted before 2018 will end. New thin capitalization regulations will be mandatory after December 31, 2018 for all loans regardless of the date they were received and the entity providing financing.

In addition, in line with the adopted amendment to the provisions of CIT, the regulations regarding the tax EBITDA will remain unchanged, i.e. the value of threshold will remain at 30% (the legislator initially proposed a reduction to 20% in the draft amendment). Also, the amount for which the costs financed in total may constitute tax deductible costs (i.e. PLN 3 million) did not change.

It is worth pointing out that the restrictions on the calculation of financing costs (in particular interest) refer not only to current costs, but also to the part of depreciation costs (e.g. building) in which the value underlying such write-offs was in the past the cost of financing.

• PCC rate on loan agreements – according to the currently binding provisions, loan agreements should be subject to a 2% tax on civil law transactions. However, from January 1, 2019, a new, 0.5% PCC rate will apply.
• Change of regulations regarding WHT – in accordance with the amendment to the provisions on collection of WHT, the payment of interest exceeding PLN 2,000,000 will in principle oblige to calculate, collect and pay the full tax on the amount exceeding the statutory threshold. The possibility of not collecting WHT in such case will be determined by necessity to meet a number of additional formal conditions. At the moment, it is not clear whether the new provisions will become effective from January 1, 2019 or whether their validity will be postponed in time on the basis of the relevant regulation.

1. No impact of construction receipt on real estate tax

In accordance with the judgment of the Supreme Administrative Court of November 27, 2018, reference number Act II FSK 3250/16, the actual completion of construction works is, without inspection of usability or non-usability, completion of construction.

The subject of the dispute was the moment of tax obligation in real estate tax. In accordance with the provisions of the Act on Taxes and Local Charges, if the circumstance on which the tax obligation is dependent is the existence of a building or structure or a part thereof, the tax obligation arises on 1st January of the year following the year in which the construction was completed or in which the use of the building or structure or parts thereof began before their final finishing. However, this Act, just like the Construction Law Act, does not contain a legal definition of the concept of completion of construction.

According to the indicated facts, a company that is an investor in the construction and operation of a terminal for handling and storage of crude oil, claims that the real estate tax obligation in respect of this investment will arise from 1st January of the year following the year in which the technological commissioning has been successfully completed, because only then the terminal will be ready for use. The company also referred to the corporate income tax regulations, from which it appears that in order for an object to be permanent, it must have the features listed in art. 16a paragraph 1 of the CIT Act, hence the value and feature of completeness and suitability for use.

However, the authority interpreted that completion of construction means the existence of the actual state of completion of works related to the construction of a building. The consequence of the completion of construction is the construction of a building or a building constituting objects subject to property tax. The last entry in the construction log confirms the existence of the building or structure or parts thereof, which results in the tax obligation starting from January 1 of the following year. The authority finds irrelevant for RET obligation, that the taxpayer carries out actions to equip this facility or verify their suitability for conducting a given business activity.

The Provincial Administrative Court in Gdańsk agreed with the position of the authority that the tax law provisions make the taxation of buildings subject to a specific state of actual completion of construction or use before the final finishing of the buildings, not technical condition. The Supreme Administrative Court also disagreed with the company, considering that if it is not possible to determine the date of completion of construction under the tax law, it should be done based on an analysis of the provisions of the Construction Law Act that the completion of construction is the moment when conditions for submitting a notification of completion of construction.