Court decisions and Tax Rulings
1. In an individual interpretation dated 21 May 2018, (no. 0111-KDIB1- 1.4010.68.2018.3.BS), the Head of the National Fiscal Information Office declared that the tax on commercial properties is to be paid irrespective of the area of a building used for lucrative purposes.
The subject matter of this interpretation was a question asked by a company which possessed an office building, partially leased to third parties. The lease of the office areas was an additional business activity for the applicant. According to the company's estimate, the leased area constituted no more than 30% of the total area of the office building, whereas the remaining part was used for the Company's own administrative purposes. Consequently, in its application for a tax interpretation, the Company asked whether it was obliged to calculate and pay the income tax referred to in Art. 24b of the CIT Act on account of the ownership of these buildings in which more than 30% of the area was leased.
The tax authority decided that since the company in question leased out up to 30% of the area of its buildings it, therefore, obtained actual revenue from these leases. This was why the tax authority did not consider it possible that the buildings in question were mainly used for the Company's own needs. By the same token, according to the tax authority, in the context of the facts presented in the application, the company would not be subject to any tax exemption provided for the buildings used for its own purposes as referred to in Art. 24b Sec. 2 Item 2 of the CIT Act.
The interpretation concerned those provisions of the CIT Act which entered into force on 1 January 2018. The issue raised in the interpretation concerned a number of entities (owners of office buildings) in which even a very small fraction of the area was being leased out.
2. In the judgement dated 15 March 2018, (file no. II FSK 610/16), the Supreme Administrative Court concluded that tax authorities cannot, in the course of a tax inspection, change their opinion as expressed in a tax interpretation that had previously been obtained by the taxpayer, especially if it was advantageous for the taxpayer.
The decision concerned a situation in which a Company obtained an individual interpretation of the provisions of tax law, determining the tax effects of a future event. In the course of the inspection, the tax authority, while referring to the previously obtained interpretation, determined that it was not binding in respect of the inspection because it was granted at a date later than the period which was being inspected, and instead concerned a future event.
The Supreme Administrative Court upheld the taxpayer’s position. The court decided that, formally, the interpretation was not binding towards the tax authority because it was issued in respect of a future event, therefore, its protective nature would not apply to the actual state existing before its issuance. The Court, however, took the view that it was necessary to take into account the fact that an individual interpretation had been granted for the same taxpayer in respect of a factual state which was identical to the one determined during the proceedings in respect of the determination of overpayment, as well as in respect to an identical legal state.
The Court pointed out that the taxpayer, in the context of the principle of public trust in tax authorities as expressed in the provisions of the General Tax Regulations Act, had the legitimate right to expect that in the situation of an occurrence of a factual state which was identical to that specified in the application for an individual interpretation (in both cases applicable to the same taxpayer and in the same legal state) the tax authority in question was expected to provide an identical interpretation of law.
3. The Administrative Court of the Małopolskie Province in Kraków, in its decision granted on 1 December 2017 (file no. I SA/Kr 1036/17) determined that accounting for the VAT on the basis of the reverse charge mechanism was not applicable to additional construction works performed in favour of one of the lessees.
The subject matter of the decision was an appeal against an interpretation concerning the transactions concluded between a lessee in a building (which entrusted the performance of specific works for the adaptation of the leased premises for the purposes of its business activity), and the Company which acted as the principle building contractor in respect of the entire building. The supervision over the works, their acceptance, the payment of remuneration, and the take-over of the entitlements arising from the guarantee, was vested with a lessee of a given premises. The Company asked whether, in the context of the works performed in favour of the lessee, it would become a subcontractor of the entrusted building works and, consequently, whether the provisions on the accounting for the VAT using the reverse charge mechanism would apply to this situation.
In the opinion of the Court, it was the lessee that acted as an investor (an entity ordering a given service) - the works connected with adapting the leased premises to the business activity were conducted in accordance with its expectations, and it could influence the process of the selection of the entity performing those works. The Company, therefore, was not acting as a subcontractor, but as a contractor; the services were rendered directly in favour of the investor, i.e. the party which ordered a given service. By the same token, there were no grounds for the application of the special rules of accounting for VAT using the reverse charge mechanism. Subsequent settlements between the lessee and the owner of the property under the concluded lease agreement were irrelevant for the assessment of the status of the entities participating in the construction undertaking in question.
According to the Court, the provisions of the agreement in respect of the scope of services, the conditions for their rendering, or the circumstances occurring in a given case, as well as the nature of the services, determined whether a given entity was considered as an investor, a general contractor, or a subcontractor. The subcontractor was the subsequent executor of the works (comprehensive or partial) within the framework of the investment, entrusted by the investor to the general contractor. The subcontractor was, therefore, an entity acting at the request of the general contractor. In connection with the above, the services rendered by the entity (acting as the general contractor) in favour of the owner of the property (the investor) on the basis of the building works contract concluded between those parties, were accounted for on general terms.
Consequently, the Court confirmed that if a given entity was the general contractor of the entire building, it could not be assumed that while performing the additional construction works in one of the premises in connection with the lessee's requirements, it became a subcontractor.
4. The Administrative Court of Wielkopolskie Province in Poznań, in its judgement dated 10 January 2018 (file no. I SA/ Po 988/17) stated that a transfer of employees was an unnecessary condition for determining that the contribution in kind of a set of assets and rights constituted a contribution of an organised part of an enterprise.
The subject matter of the decision was the issue of an application for preferential tax treatment in respect of a contribution of assets constituting an organised part of an enterprise. In the factual state of the interpretation which was the subject-matter of the proceedings, the Company specified that it intended to contribute specific elements of assets (such as warehouses, equipment, obligations, etc.), without, however, including any employees in said contribution. The Head of the National Tax Information Office decided that due to the fact that the employees necessary to work in the warehouses were not transferred, the conditions for treating the contributed elements as an organised part of an enterprise, had not been met.
The Court did not share this position and stated that the underlying requirement for treating a transfer of assets as an organised part of an enterprise was that these assets had to constitute a set of tangible assets and rights (including obligations, amounts receivable, and cash), subject to a detachment from the existing enterprise, on three planes: organisational, financial, and functional (understood as the designation for the implementation of specific business tasks). It was important that an organised part of the enterprise should be able to constitute a potentially independent enterprise, individually performing economic tasks, for the performance of which this part had been designated in an existing enterprise.
On the other hand, excluding only a number of the tangible assets and rights could be irrelevant in respect of the qualification of the transferrable elements of assets as an organised part of an enterprise. Consequently, the fact that the enterprise did not have any employees did not deprive this enterprise of the possibility of carrying out specific business objectives.
New Bills
Bill on companies investing in real property designated for leasing.
The Minister of Finance presented a bill introducing favourable tax conditions for investing in residential properties designated for leasing.
The Minister of Finance suggested the introduction of a new form of joint stock company to the Polish legal system, which objective would be investing in residential premises designated for leasing (so-called F.I.N.N. companies).
Using the formula of an F.I.N.N. company could be linked to preferential tax treatment in respect of the Corporate Income Tax Act and the Personal Income Tax Act. The preferential tax treatment is expected to apply to both companies investing in leasing real properties, their subsidiaries, and to the investors (shareholders) of companies with the F.I.N.N. status.
The tax advantage for a F.I.N.N. company will consist of deferring the obligation to pay CIT on account of the income from, among other things, leasing residential properties, and the sale of these properties - to the date of payment, for this period - of the dividend to the shareholders. Moreover, the new provisions are to introduce a new rate of CIT, i.e. 8.5%, in respect of the income obtained, directly or indirectly, from leasing residential premises by F.I.N.N. companies. This means that the tax, calculated with the application of a lower rate, would be payable only after the payment of the dividend to the shareholders.
A number of other tax advantages for the subsidiaries of F.I.N.N. companies have also been planned. These entities would be able to benefit from the exemption of CIT in respect of the income obtained from leasing residential premises, provided the dividend due to a given F.I.N.N. is paid in due time.
A Bill also stipulates exempting investors from being taxed with income tax in respect of the income obtained from capital investment in F.I.N.N companies. The exemption in question will be applicable both in the case of investors paying either CIT, or PIT.
The Bill is in the consultation stage; the new regulations are expected to enter into force on 1 January 2019.