Real Estate ‎News Fabruary 2018

Date of an article 28 February 2018 r.

Real Estate ‎News Fabruary 2018

The deadline to pay the new tax on commercial real estate falls on 20th of February

CIT amendments already amended (with retroactive effect)

Developed property is not an organised parts of enterprise (OPE)

Investment funds investing through partnerships (no CIT exemption)

Obligations and rights of the acquiring company as the successor (VAT)

Supply of doors with installation and reverse chargé

Guarantee deposit may be considered tax deductible if the expense is definite

The deadline to pay the new tax on commercial real estate falls on 20th of February

 Starting from 1 January 2018, new regulations amending the CIT act have been in force. This means that the taxpayers are obliged now also obliged to pay “minimum tax” on the commercial real estate they own.

The deadline to pay the first advance falls on 20th of February.

We would like to remind you – in a nutshell – how this new tax works:

  • the tax is due on commercial real estate whose value exceeds PLN 10 mln
  • the base for calculating the tax is the gross initial value (for taxes), i.e. without depreciation, increased by improvements
  • the tax rate is 0.035% on the value exceeding PLN 10 mln
  • minimum tax may be “set-off” against due CIT – taxpayer may refrain from paying it if it is lower than CIT advance due.

Based on informal press information, the said regulations, introducing the tax, could to be subject to investigation by the European Commission. A potential investigation in this regard does not mean that the minimum income tax for commercial real estate would be immediately suspended. At this stage it would be rather verified (within the next months) whether the new tax complies with the EU regulations (in particular regarding the tax free base – PLN 10 mln – which could be seen as limitation of the freedom of competition within the EU).

Accordingly, it is possible that in the future the said tax will be questioned as to its justifiability, or modified. We will keep you informed on that topic.

CIT amendments already amended (with retroactive effect)

On 4 January 2018, a bill was published on the website of the National Bureau of Legislation, which is aimed to amend the recently passed amendments e.g. to the Polish CIT act (which entered into force starting from 2018). It is planned that the changes will come into force with retroactive effect (as of 1 January 2018).

The bill includes in particular the following changes:

  • capital injections to companies will not be subject to CIT, only in-kind contributions (the previous amendment introduced taxation of all types of contributions);
  • the possibility for the tax authorities to assess income/loss in case the value of liabilities exceeds the value of financing which could be granted to the taxpayer by a non-related entity (new regulation).

Even though the bill was submitted by the Minister of Development and Finance in November 2017, cross-departmental negotiations are still in progress. All the changes and the status of the legislative process can be tracked under the this link:

https://legislacja.rcl.gov.pl/projekt/12306805

Developed property is not an organised parts of enterprise (OPE)

 The question of qualifying plots of land with buildings developed as an organised part of enterprise has recently been touched upon by several verdicts of the administrative courts, which led to contradictory conclusions. Qualification as OPE significantly affects VAT outcomes (and also TCLT). This time, the subject was closely examined by the Supreme Administrative Court, which issued a verdict on 26 January 2018 in the case no. I FSK 1127/17.

NSA concluded that real estate, even if developed, do not constitute a whole capable of carrying out business activities independently. This means that they cannot be considered as an organised part of enterprise, even if they were earlier used by the seller for letting activities. NSA pointed out that  carrying out that type of activity is connected with a certain functional separation within the firm’s structure and only then a sale of assets separated this way (branch, department) may meet the premise of separation and independence, as required by the Art.2(27e) of the VAT Act. The fact that the purchaser of the property is going to use it in his structure for conducting same activities as the seller did is not a sufficient determinant. The NAS has once more underscored that the regulation require separation from organisational and financial perspective within the existing enterprise, in order for a set of assets to be labelled as an organised part of enterprise.

A similar tone was expressed, this time on the basis of the corporate income tax, by the Voivodeship Administrative Court of Warsaw in a recently published verdict of 21 September 2017 r. (III SA/Wa 2907/16).

Investment funds investing through partnerships (no CIT exemption)

In his verdict of 20 December 2017 (II FSK 2912/15), NSA ruled that investing made by investment funds through Polish partnerships, such as spółka jawna (general partnership) or spółka komandytowa (limited partnership), by acquiring participation rights, exceeds the scope of activities allowed for such funds in the light of Art. 6(1)(10a) of the CIT Act.

NSA pointed out that in such a case the foreign investment fund will be deriving revenues from business activities, which is more that locating funds in passive sources. As a consequence, an entity carrying out such activities will not be able to benefit from the exemption envisaged for foreign investment funds.

Obligations and rights of the acquiring company as the successor (VAT)

In the ruling of 9 January 2018 (0114-KDIP1-2.4012.612.2017.1.RM), the Director of the National Fiscal Information meticulously elaborated upon the rules of settling VAT and issuing invoices and correction invoices – in the case where a VAT taxpayer is acquired by another taxpayer (merged into).

The authority noted that, since the acquiring company was struck off the register, as of the day of the merger the acquiring company became the successor of all its tax rights and obligations.

One of the obligations which had been inherited by way of the merger was the one to submit VAT returns for the acquired companies. VAT returns for the period in which the merger had taken place are submitted by the acquiring company, with however a separate return for each of the entities acquired. The acquiring company is also the only entity allowed to correct the returns that had been submitted by the acquired entities prior to the merger.

Rights of the acquiring company also pertain to correction invoices. The acquiring company will take over the right to issue corrections to invoices that had been initially issued by an acquired company. On the other hand, in case the acquiring company received a correction invoice (in plus or in minus) concerning acquisition of services or goods by the acquired entities prior to the merger, then the acquiring company will be entitled to settle VAT resulting from such a correction. The authority noted that it is not relevant from the perspective of the company’s right to settle input VAT if this correction invoice shows the previous (acquired) company as the name of the purchaser.

Supply of doors with installation and reverse chargé

In the ruling issued on 7 December 2017, the Director of NFI was considering a case of a supply of doors together with their installation and service carried out in the course of a guarantee granted (0114-KIDP1-2.4012.455.2017.2.JŻ).

When analysing the case described by the taxpayer, the authority first noted that a supply of custom doors tailored specifically based on a individual project is an integral part of the installation. As a consequence, all the supply should be treated as a service.

On the other hand, the authority noted that the entity acquiring this service did not acquire it for the purposes of further provision mentioned in pos. 2-48 of the appendix no. 14 to the VAT Act. As a result, it should be considered that the taxpayer was not acting as a subcontractor, as referred to in the Art.17(1h) of the VAT Act.

As a result, even though the taxpayer’s action was of a service nature (construction), the reverse charge mechanism will not apply to the relation of the taxpayer with the service recipient (lack of subcontractor relationship).

Guarantee deposit may be considered tax deductible if the expense is definite

The question of tax deductibility of guarantee deposits paid was discussed by the Voivodeship Administrative Court of Warsaw in the verdict of 8 September 2017 (III SA/Wa 2575/16).

The court reminded that, as a rule, guarantee deposits are refundable and as such, at the moment of their payment, cannot be considered as deductible in tax terms. Nevertheless, qualification as a tax cost is affected by whether such expense is definite.

Such a situation took place when an entity, who received the deposit (initially refundable), was subject to insolvency proceedings. As a result of the proceeding being closed it became clear that the taxpayer will not be able to reclaim the deposit that had been paid, thus resulting in the amount paid being his losses. IN the case where the paid deposit was transferred as a condition concerning a source of revenues (e.g. as a condition for concluding an agreement), it may be then be considered as a tax deductible cost.

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