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Advicero Tax Nexia | REAL ESTATE NEWS | September 2018

  1. Changes in minimum tax on commercial property
  2. Planned changes in CIT for 2019
  3. Taxation of billboards
  4. VAT settlement in case of advances paid for rent
  5. Business activity in case of lease of twenty apartments
  1. Changes in minimum tax on commercial property

On 19th July 2018 an amendment to income tax acts came into force, from which the most important change relates to minimum tax on commercial property. Changes in this regard will enter into force as of January 2019 (with some exceptions).

According to the amendment minimum tax will cover all buildings (residential and non-residential) located in Polish territory in case they generate revenues from lease. Another negative change relates to tax free amount, i.e. PLN 10 million which is to be afforded to a given taxpayer irrespective of the number and value of owned buildings (currently the value relates to each building – in practice taxpayers owning a few buildings apply a tax free amount to each of them). Legislator decided to include also mechanisms preventing optimization activities in the area of minimum tax.

Simultaneously, according to the amendment an unleased part of a building will not be included in tax settlement.

Polish legislator provided also mechanism of minimum tax refund for entities achieving income lower than the one resulting from calculation of minimum tax (or generating losses). Such refund will be made on taxpayer’s request after previous verification of its tax settlements with related entities. This beneficial change is applied with retroactive effect – that is from 1st January 2018.

  1. Planned changes in CIT for 2019

On 24 August 2018 on website of Governmental Legislation Centre a draft act was published amending corporate income tax act, personal income tax act and Tax Ordinance. Among changes the most important are:

1) introducing of taxation of income from non-realised profits (so called exit tax)

The main aim of this tribute is to prevent deprivation of tax inflows due for a period in which a taxpayer was under Polish tax jurisdiction. Tax rate from non-realised profits will be 19% of tax base (for CIT taxpayers).

2) introducing decreased CIT rate of 9%

Decreased tax rate will be available with regard to revenues (income) other than received from capital gains. Such rate will be available for taxpayers with revenues in a given year of less than PLN equivalent of EUR 1.2 million. The preferential conditions will be available also for small taxpayers (unless it is their first tax year) as well as taxpayers with profitability below 33%.

3) Tightening the settlement of withholding tax (WHT) – changes may have an impact mostly on settlements of the largest taxpayers which during a tax year pay to one entity receivables exceeding PLN 2 million. In such a case tax remitter is obliged to collect WHT from the excess above PLN 2 million according to 20% or 19% rate. Appropriate exemptions or reductions of tax rate will be applied only in case when tax remitter submits relevant statements proving that documentation is owned and conditions fulfilled. Tax paid according to standard rates will be refunded but only after 6 months (with the possibility of prolongation of this deadline).

4) Innovation Box – which means introduction of new, preferential taxation on income resulting from ownership rights such as patents, protection rights for a functional design. Decreased tax rate will be 5%.

5) Notional interest deduction (NID) – that means the possibility of treating internal financing costs, being the equivalent of debt financing costs, as tax deductible (ie “artificial” costs on retained profits or equity infusion).

The draft amendments include also a number of other changes. The draft is currently under public consultation and final wording is still not know. We will be monitoring further works in this matter and inform about them on an on-going basis.

  1. Taxation of billboards

According to the ruling of Supreme Administrative Court (NSA) of 7th August 2018 (no II FSK 1983/16) the company is obliged to pay real estate tax from advertising carriers as they constitute a structure in the meaning of construction law (as a rule according to 2% rate from their value).

In analysed case the court of first instance took the standpoint that advertising carriers shall be treated as structures permanently tied to the land which are connected to business activity and therefore they shall be taxed with RET. One of the evidence of a structure shall be the fact that carriers are attached to the floor by foundations. Moreover, they are connected to the ground in such a way that makes them stable and proof against external influences. In consequence the weight and safety reasons are determinants whether freely-situated object is tied to the ground.

NSA rejected cassation complaint submitted by the company and approved the standpoint presented by the court and tax authorities. In opinion of NSA it is not the way how it is immersed in ground or what is the production technique, but rather the weight and size which requires connection to the ground for safety reasons – that is decisive on whether or not the object is permanently connected to the ground. Billboards are free-standing constructions which consist of screen and load-bearing pillars attached to concrete, monolithic foundations. The foundation is exactly the element which determines about the permanent connection to the ground. In consequence billboards are the objects subject to real estate tax.

  1. VAT settlement in case of advances paid for rent

According to the ruling of Supreme Administrative Court (NSA) of 3 August 2018 (no I FSK 1842/16) advance payment made before performance of service does not lead to necessity of VAT settlement and issuing an invoice.

Analyzed case concerned the company engaged in lease of premises in shopping center. The company entered into lease agreement with a third party related to the building being still in construction phase. Rent was to be paid from  the day of acceptance of the building according to the protocol. However, tenant decided to make an advance payment before this term. Taking the above, the company asked whether such payment rise an obligation in VAT as well as the need to issue an advance invoice.

The company took the standpoint that establishing term of advance payment in lease agreement as well as the payment itself does not create tax obligation in VAT and necessity to issue an invoice.

Tax authority did not agree with taxpayers view. In its opinion tax resulting from lease services becomes due in the date of issuance of an invoice, however the deadline is an established date of payment.

Voivodship Administrative Court confirmed the standpoint of taxpayer. In its opinion, provisions invoked by the authority do not mean that specifying the deadline to pay advance payment by the parties in lease agreement determines tax obligation in VAT as well as necessity to issue an invoice.

Judgement of WSA was approved by the higher instance. NSA agreed that in the disputable case advance payment before performing services does not cause an obligation to settle VAT and issue an invoice.

  1. Business activity in case of lease of twenty apartments

According to the ruling of the  Voivodship Administrative Court in Opole of 8 August 2018 (no I SA/Op 191/18) lease of 20 premises by an individual creates business activity which exclude the possibility of applying lump sum taxation.

The case concerned an individual whose main source of income was farmstead. Taxpayer took the standpoint that his activity related to lease of 20 premises did not have the elements of business activity therefore it could not be taxed by the lump sum.

Tax authority considered entities standpoint as incorrect. According to the authority activity run by natural person fulfills the conditions to treat it as business activity, therefore it should be taxed according to the rules specific for entrepreneurs. Tax authority confirmed that lease of such amount of premises shall not be treated only as additional source of earnings.

The court approved the view of tax authority and indicate that personal dealing with maintenance of premises does not exclude treating their owner as entrepreneur. Nowadays running business activity may also be done in domestic environment by using computer.

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