Tax Highlights for Real Estate – March 2023

March 2023

Dividend exemption from withholding tax – status of beneficial owner necessary.

According to the provisions of the Polish CIT Act, one of the conditions for the application of the dividend withholding tax exemption is the exercise of due diligence. Contrary to the requirements for the exemption of interest and royalties, in the case of the exemption for dividends, the legislator has not directly indicated the obligation for the recipient of the receivable to have beneficial owner status. To date, the jurisprudence of administrative courts regarding the obligation of the remitter examining the applicability of the exemption to verify the beneficial owner status of the recipient of the dividend has been favorable from the perspective of taxpayers. In the view of the courts (e.g. judgments of the NSA of 27.04.2021, II FSK 240/21, WSA in Łódź of 04.10.2022, I SA/Łd 505/22), in order to benefit from the exemption stated in Article 22(4) of the CIT Act, the company paying out a dividend is not obliged to verify whether the entity receiving the receivable is its beneficial owner, because such a requirement is not explicitly set out in the CIT Act. Instead, the requirement imposed on the taxpayer in this respect is the ownership of the shares of the subsidiary. However, in a new judgment of 31 January 2023 (ref. II FSK 1588/20), the Supreme Administrative Court changed its view on the issue in question and stated that it is the remitter’s duty to verify the beneficial owner status of the dividend’s recipient. According to the judgment, exercising due diligence when examining the applicability of the exemption also includes verification of the beneficial owner status, although such a condition is not directly indicated in the CIT Act or EU Directive 2011/96/EU, to which the NSA refers. In the opinion of the court, the lack of such verification constitutes an abuse of the tax preference.

NSA: non-resident income from the provision of insurance services is not subject to withholding tax.

The Supreme Administrative Court in its judgment II FSK 972/22 of 14.02.2023 ruled, that insurance services do not qualify as services of a similar nature to guarantees, and therefore do not constitute a source of income subject to withholding tax. A different position on this issue is taken by the Director of National Tax Information, who, in the ruling 0111-KDIB1-1.4010.270.2021.3.AW of 21.09.2021, stated that the remitter is obliged to collect withholding tax on the provision of insurance services by a foreign contractor, as services of this type constitute a benefit of a similar nature to guarantees, which are listed in Article 21(1)(2a) of the CIT Act. However, the WSA in Cracow did not agree with this standpoint and repealed the said ruling. Finally, the case was heard by the Supreme Administrative Court. In the justification for its judgment, the NSA emphasizes e.g. the differences on the linguistic level between the notions of insurance and guarantee. In its opinion, the constitutive features of both benefits are not similar enough to speak of their similar nature. The court also points out that in contrast to the benefits listed in Article 21(1)(2a) of the CIT Act, an insurance agreement is a named contract with a historically established shape and commonly encountered in foreign legal orders. In other words, unlike services such as market research, management, consultancy, the scope of which is variable and difficult to grasp, the concept of insurance has its established meaning.

Real estate tax and perpetual usufruct fees are indirect costs.

The company is a special purpose entity established for carrying out a specific project consisting in the acquisition of plots of land and their sale to a third party after preparation for a development project. Accordingly, as part of its operations, the company purchased a number of plots of land under agreements for the transfer of the right of perpetual usufruct and sale. After carrying out a number of works to improve the legal and factual status of the plots, the company concluded a preliminary sales agreement with a potential buyer. The execution of the final sale agreement was subject to number of conditions, including the payment of all tax liabilities (lack of arrears). In addition, the sale price of the property included all costs incurred by the company in adapting the property for the development project, together with expenses for perpetual usufruct and real estate tax. Therefore, the company, in its request for an individual ruling (ref. 0114-KDIP2-2.4010.316.2022.2.PK) asked the tax authority whether the real estate tax and perpetual usufruct fees constitute a tax deductible cost at the time of sale of the plots. The Director of National Tax Information did not agree with the company’s position that the expenditures on the aforementioned titles constitute direct tax deductible costs. The tax authority agreed with the company on the identification of these costs as tax deductible costs, but in its view, the constitute costs other than directly attributable to revenue (indirect costs). In arguing its decision, the Director points out that both the fees related to real estate tax and perpetual usufruct of land result from the very fact of possession of real estate by the company and are incurred regardless of the purpose for which they were purchased.

Liberalisation of the regulations on the tax on civil law transactions in the wholesale purchase of flats.

The Minister of Development and Technology, Waldemar Buda, has announced changes to the draft of the amendment concerning the tax on civil law transactions in the wholesale purchase of flats. According to the announced for months modifications in the TCLT Act, entities acquiring more than five flats were to be charged a tax of 6% calculated on the purchase of the next property, regardless of its location. In the current version of the amendments, the tax is to be charged on the purchase of more than five flats within a single development. According to the minister, changes in the draft will result in a geographical diversification of investors’ portfolios and allow individual customers to access flats in each development. The new solution is to be introduced as an amendment to the government’s bill on low-cost housing loans with an interest rate of 2%.

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