Tax Highlights for Real Estate – February 2024

1. CIT also due in case of the tax on revenues from buildings

Under Article 17, paragraph 1, point 57 of the Corporate Income Tax (CIT) Act, incomes of closed-end investment funds are generally exempt from taxation. However, this provision also specifies a finite list of incomes that are excluded from this exemption. According to clause g of this regulation, the exemption does not apply to income from real estate as specified in Article 24b(1) of the CIT Act, i.e. namely from a fixed asset being a building that simultaneously meets three conditions:: 

• is owned or co-owned by the taxpayer, 
• It has been leased out in whole or in part under a lease, tenancy, or similar agreement, 
• is located in Poland. 

Moreover, for a taxpayer to be obliged to pay the so-called tax on revenues from buildings, the sum of income from all property owned by the taxpayer must exceed the amount of PLN 10 million. Within the framework of this tax, we are dealing with income in a specific sense, as it constitutes the initial value of a taxable fixed asset determined on the first day of each month. 

In view of the above regulations, the closed-end investment fund, which has not exceeded the above-mentioned threshold, deduced that its income from the lease or sale of real estate may benefit from CIT exemption. In the application for an individual interpretation, it was argued that Article 17, paragraph 1, point 57, clause g of the CIT Act does not imply that incomes of closed-end investment funds from leasing real estate, as mentioned in Article 24b, paragraph 1, are subject to income tax at a rate of 19%. In the applicant’s opinion, clause g merely introduces taxation on income from buildings for closed-end investment funds. 

However, both the tax authority and administrative courts disagreed with this position. In the verdict III SA/Wa 177/20 dated October 9, 2020, the Provincial Administrative Court in Warsaw assessed that the legislator in Article 17, paragraph 1, point 57, clause g of the CIT Act deliberately used the term income (instead of “income (revenue)”) from real estate, referring to Article 24b, paragraph 1 (about the tax on income from specified real estates), determined that the income of closed-end investment funds, defined on general terms, would be taxable for the real estates specified in this provision. 

This position of the provincial court was also confirmed by the Supreme Administrative Court in the verdict with the signature II FSK 462/21 dated January 16, 2024. Whether a given taxpayer is qualified or not for the obligation to pay the tax on income from buildings does not affect the necessity to pay CIT on the income from leasing or selling commercial buildings. 

2. Additional TCLT on wholesale purchase of flats

Pursuant to the Act of 26 May 2023 amending the Act on Municipal Self-Government, the Act on Social Forms of Housing Development, the Act on Real Estate Management, the Act on Tax on Civil Law Transactions and certain other acts, the legislator introduced an additional TCLT burden for purchasers of flats. 

As part of the amendment, Article 7a. was added to the TCLT Act, according to which in the event that the purchaser acquires at least six residential premises constituting separate properties in one or more buildings on one land property, or has already acquired at least five such premises, it is obliged to pay tax in the amount of 6% on the concluded agreement on the sale of the sixth and each subsequent premises. 

The new tax came into force at the beginning of this year. The solution introduced is intended to counteract the wholesale acquisition of real estate by foreign funds. 

3. Real estate tax: lands in the fixed asset register are related to business activities

In 2021, a company submitted a request to the tax authority to confirm the overpayment in property tax due to, in their opinion, the incorrect taxation of lands where railway lines had been dismantled, at the rate intended for lands associated with conducting business activities. In their view, these lands could not and would not be used for business activities in the future and should not be classified as such. Moreover, the taxpayer pointed out that the subject lands were adapted exclusively for use as a railway path, and their dismantling made it impossible for the entrepreneur to use them due to reasons beyond their control. 

However, in the tax authority’s opinion, taxable objects that directly or indirectly serve or may serve to conduct business activities should be considered related to business activities. Furthermore, it pointed out that the lands in question were registered in the taxpayer’s fixed assets register and were subject to depreciation deductions. Thus, according to the authority, they were still considered associated with conducting business activities. 

Due to the refusal to refund the overpayment, the taxpayer appealed the negative decision to the Self-Government Appeals College and then to the Provincial Administrative Court. Finally, the case was heard by the Supreme Administrative Court, which in its verdict III FSK 487/23 dated December 18, 2023, sided with the tax authority’s stance. 

In its justification, the NSA referred, among others, to its position expressed in the verdict III FSK 4061/21 from December 15, 2021, where regarding the concept of “association” of real estate with conducting business activities, it was indicated that this association, besides the mere possession of real estate by the entrepreneur, should be based on even potential use of this real estate in business activities. Lands that directly or indirectly serve to conduct business activities should be recognized as related to such activities. Additionally, the inclusion of real estate in the fixed assets register, as was the case in this matter, can be useful in determining the association of real estate with conducted business activity. The NSA also noted that the taxpayer’s scope of activity is broad and includes leasing, purchasing, and selling real estate, which also indicates the potential use of lands in business activities. 

4. Issuance of banking documents is subject to 23% VAT 

The VAT Act, in Article 43, paragraph 1, points 38 – 41, provides an exemption from tax for a series of transactions related to banking activities, such as services of granting loans or guarantees, in the scope of depositing funds or services whose subject are financial instruments. However, the regulations do not directly address whether the issuance of certificates and documents related to these services also qualifies for VAT exemption. Consequently, taxpayers request individual interpretations in this context. 

In one such interpretation, namely interpretation sign. 0114-KDIP4-3.4012.552.2023.1.APR dated January 29, 2024, the Director of KIS once again determined that the paid issuance of a certificate of conducting a bank account or a document containing information on granted loans or bank guarantees is subject to VAT taxation at a rate of 23%. 

In the applicant’s opinion, the issuance of the mentioned documents should be qualified as auxiliary elements to the services from Article 43, paragraph 1, points 38 – 41 of the VAT Act, and thus exempted from taxation. They argued that issuing documents is secondary to the provided financial services. In other words, issuing these documents would be economically senseless and primarily impossible without providing the services covered by the aforementioned provisions. 

However, the tax authority, referring to selected judgments of the CJEU, did not agree with the applicant’s position. In its opinion, issuing documents for a fee does not affect the provision of financial services exempt from tax, as mentioned in Article 43, paragraph 1, points 38-41 of the VAT Act. In the justification, it also stated that the nature and manner of performing these activities indicate their independence; these are separate activities performed at the client’s request, regardless of the performed services. Although these activities are generally related, for example, to a bank account or a securities account of the client, their execution in no way serves the better performance of the main service.