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Home / News / Real Estate News / Advicero Tax Nexia | REAL ESTATE NEWS | January 2019

Advicero Tax Nexia | REAL ESTATE NEWS | January 2019

  1. VAT taxation on sale of commercial real estate – explanations of the Ministry of Finance
  2. Income tax on sale of a replacement plot
  3. Simplified solutions for some transactions with related parties – „safe harbours”
  4. Tax loss utilization starting 2019
  5. Revenues from renting stadium are not subject to minimum income tax
  1. VAT taxation on sale of commercial real estate – explanations of the Ministry of Finance

The main reason for issuance by the Ministry of Finance to the official explanations about the application of the existing regulations are doubts as to the assessment of a disposal of a commercial real estate either as an enterprise (its organized part) or a single asset.

In the issued explanations the Minister of Finance specifically referred to the circumstances that must arise in order for the sale of commercial real estate to be classified as the sale of the enterprise or its organized part. The most important conclusions:

  • in principle, delivery of commercial real estate is a supply of goods subject to VAT, and only after meeting certain conditions can be considered a delivery of an enterprise (an organized part thereof) not subject to VAT,
  • classification as an enterprise (an organized part thereof) is determined by (i) the intention of the buyer to continue the seller’s activities and (ii) the actual possibility of continuing this business based on the purchased assets, where both premises are verified at the time of the transaction,
  • conclusion by the buyer of a new contract for asset management and a contract for property management excludes the possibility of classifying the purchased commercial real estate as an enterprise (its organized part).

In addition, the explanations indicate circumstances that are not relevant for the proper classification of the subject of the transaction – this is the fact of transferring selected elements of the enterprise, resulting from the definition of the Civil Code, which are often sold together with Land, building and structures to emphasize the existence of the enterprise (its organized part).

Explanations can be used as well as assess transactions performed before the date of their issue. Regardless of this, if individual tax interpretations were issued for transactions already carried out, these explanations do not violate the protective value of these interpretations.

  1. Income tax on sale of a replacement plot

According to tax ruling issued by the Director of the National Fiscal Information as of October 30th, 2018 (reference number: 0113-KDIPT2-2.4011.422.2018.2.AKU) in order not to pay 19% of personal income tax from sale of replacement land received after expropriation, it is necessary to allocate the funds from the sale of this land to the own housing purposes or perform the sale after five statutory years.

In the case at hand, the taxpayer received a decision to expropriate her from the currently occupied plot and to transfer her to another plot for renumeration. After receiving a replacement plot, the taxpayer’s decision was to dispose of the plot before the expiration of five years, which, according to the regulations, should trigger an obligation to pay income tax at rate 19% . However, the taxpayer stated that this obligation does not apply to her case due to the housing relief, because she was forced to buy the plot in question due to expropriation proceedings. According to the taxpayer’s position, if it was not for the expropriation decision, she would sell the previously occupied land now, which would not result in the need to pay personal income tax. Therefore, the sale of a replacement plot should also not give rise to the obligation to pay tax.

Tax authorities considered the taxpayer’s position to be incorrect, explaining that it is necessary to understand the acquisition in the light of the Personal Income Tax Act broadly, i.e. as the acquisition of real estate by way of conversion. Therefore, the taxpayer by the decision of expropriation became the owner of a new plot, so selling it before the expiration of five years will result in the necessity to pay personal income tax.

  1. Simplified solutions for some transactions with related parties – „safe harbours”

One of the changes introduced to the transfer pricing regulations, in force since January 1st, 2019, is the so-called safe harbours. Their application under certain conditions results that tax authorities accept the applied price as price determined on arm’s length principle.

However, in order to benefit from the simplified rules for loans and low value added services, it will be necessary to meet all the conditions set out in the regulations (below we present the crucial one):

For low value added services:

1) The mark-up on costs has been established using the cost plus method or the net transaction margin and amounts to:

  1. a) no more than 5% of costs – in the case of purchase of services,
  2. b) not less than 5% of costs – in the case of provision of services.

2) The service provider is not a resident, has a registered office or management board in the territory or in a country applying harmful tax competition.

3) The customer has a calculation including the type and amount of costs included in the calculation as well as the method of application and justification for the selection of the allocation keys for all related parties using the services.

4) Low value added services are: (i) listed in the relevant regulations (including accounting and auditing services, finance and business services, services related to human resources, IT services), (ii) they are services supporting business activity, (iii) they are not the main objects of the group of related parties, (iv) they are not provided by the service provider to unrelated parties, (v) they are not subject to further resale by the customer, excluding re-invoicing).

For loans:

1) The interest rate on the loan as at the date of conclusion of the contract is determined based on the type of the base interest rate and the margin specified in the announcement of the minister competent for public finances, valid as at the date of conclusion of this contract.

According to the published announcement, the base rates are currently (i) for a loan in USD: LIBOR USD 3M, (ii) for a loan in EUR: EURIBOR 3M, (iii) for a loan in CHF: LIBOR CHF 3M, (iv) for a loan in GBP: LIBOR GBP 3M.

At the same time, in the light of the notice, the margin is in principle 2% and is the maximum margin for the borrower and the minimum for the lender.

2) Payments other than interest related to granting or servicing the loan, including commission or bonus, are not provided for.

3) The loan was granted for a period not longer than 5 years.

4) During the financial year, the total level of liabilities or receivables of a related party in respect to the capital of loans with affiliated entities calculated separately for granted and contracted loans is not more than PLN 20 million or the equivalent of this amount.

5) The lender is not a resident, has a registered office or management in the territory or in a country applying harmful tax competition.

  1. Tax loss utilization starting 2019

One of the change in force since January 1st, 2019 is the amendment of the provisions regarding the settlement of tax losses. It should be pointed out that the new rules apply to the settlement of losses generated after December, 31st 2018. Taxpayers intending to settle the loss arising from the beginning of 2019 will have the opportunity to choose whether to settle it on the basis of newly applicable provisions or use the regulations effective until December 31st, 2018.

Under the regulations in force until the end of 2018, the tax loss could have been settled over at least two consecutive years – it was possible to offset no more than half of it. However, according to the new regulations from the beginning of the year, there is a possibility of a one-off deduction from the annual income up to PLN 5 million. At the same time, taxpayers generated their income from two sources (i.e. capital gains and operating activities) are entitled to deduct from the said income that amount by twice – PLN 10 million – if they achieve at least a similar amount of income. The provisions allowing the settlement of losses in five consecutive tax years have remained unchanged.

  1. Revenues from renting stadium are not subject to minimum income tax

According to tax ruling issued by the Director of the National Fiscal Information as of December 21st, 2018 (reference number: 0111-KDIB1-2.4010.414.2018.1.DP), a football stadium should be considered as so-called structure (i.e. it is not a building in the light of Building Law) is subject to the  minimum income tax on the revenues obtained from its rental.

According to the state of facts, a municipal company managing a sports stadium rents its surface not only for the organization of matches, but also for organizing exhibitions, fairs, conferences, concerts and others. Therefore, the company had doubts whether it would be obliged to pay the minimum income tax. According to its standpoint, due to the fact that the sports stadium does not meet the definition of a building and in the fixed assets register appears as a structure, it will not be subject to a minimum income tax.

The Director of the National Fiscal Information agreed with the position of the company and stated that in this case the classification of the object as a structure in the fixed assets register is crucial.

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