Tax Highlights for Real Estate – January 2024

1. Obligatory KSeF postponed

During a press briefing organised by the Ministry of Finance, it was announced that the date of entry into force of the mandatory National e-Invoicing System has been changed. The introduction of the system was originally scheduled to take effect on 1 July 2024.

The Minister of Finance explained the decision to postpone the date by critical errors in the system, which would have significantly reduced the comfort of doing business and the certainty that invoices issued would find their way into the system.

An external auditor is currently being selected to carry out a detailed IT audit. Currently, there is no specific date given as to when the mandatory KSeF will be in force, but according to information provided by the Minister of Finance. However, the mandatory KSeF will not come into force any sooner than 2025.

2. CJEU judgment in Polish case on employee liability for issuing blank invoices

The Court of Justice of the European Union ruled on 30 January 2024, in case C-442/22, that if an employee of a taxpayer, is responsible for issuing empty invoices containing the taxpayer’s details, the employee may be liable for the output tax resulting from these invoices.

The case concerned a Polish company where, during a tax audit, the tax office found that between 2010 and 2014 the company had issued more than 1,500 invoices that did not reflect actual sales of goods. Consequently, the company had not paid PLN 1 497 847 of VAT to the tax office. In turn, the company’s fictitious contractors exercised their right to deduct.

The tax office issued a decision in which it determined the amount of VAT due from the company under the disputed invoices. It found that the company had not exercised due diligence in issuing empty invoices by an employee.

The company filed a complaint with the Provincial Administrative Court, which agreed with the tax authority. Subsequently, the case went to the Supreme Administrative Court, which decided to refer the following questions to the CJEU for a preliminary ruling:

1) Is Article 203 of the VAT Directive to be interpreted as meaning that, where an employee of a VAT taxable person has issued a false invoice showing VAT on which he has shown the employer’s details as a taxable person, without the employer’s knowledge or consent, the person who shows the VAT on the invoice, who is liable to pay the VAT, must be regarded as:

a. the VAT taxable person whose details have been unlawfully used in the text of the invoice, or
b. the employee who unlawfully shows the VAT on an invoice using the data of a VAT payer?

2) In order to answer who is to be regarded, for the purposes of Article 203 of the VAT Directive, as the person who shows the VAT on an invoice and who is liable to pay the VAT in circumstances such as those [set out in Question 1], is it relevant whether the VAT taxable person who employs an employee who unlawfully shows on a VAT invoice the details of the taxable person who employs him can be accused of a lack of due diligence in supervising the employee?”

The CJEU ruled that any person who shows the tax on an invoice is liable for the payment of VAT liabilities, it does not always have to be the taxpayer but, for example, the taxpayer’s employee.

The CJEU also highlighted the issue of due diligence on the part of the taxpayer, in terms of employee control. In this situation, an employee of the company was responsible for issuing invoices on his own, without having to obtain approval from his superiors. The CJEU pointed out that the employer was obliged to exercise the due diligence required to control the actions of its employee and thus avoid the possibility that the employee’s identification data could be used for the purpose of issuing false invoices.

In the Court’s view, where an employee of a VAT taxpayer has issued a false invoice showing output tax, using the employer’s identity as a taxpayer without the employer’s knowledge or consent, that employee must be regarded as a VAT reporting person within the meaning of that Article 203, unless the taxpayer has not exercised the due diligence reasonably required to control the actions of the aforementioned employee.

3. Judgment of the WSA on the deduction of VAT on expenditure on the construction of dwellings built as part of a social housing initiative

The company that was set up as a social housing initiative applied for a tax ruling. The company was engaged in building residential houses and renting them out. The company’s articles of association stated that it would enter into participation agreements with individuals, after which the individuals would be able to buy the flat outright after five years.

The company had doubts regarding its right to deduct input tax from invoices documenting purchases. It was of the opinion that it uses the purchased goods and services for both nontaxable and exempt activities, but that they will eventually become the subject of taxable sales to the tenants anyway. On the other hand, the company asked for confirmation of its position from the Director of the National Tax Administration.

The director of the tax authority did not agree with the company’s view. In his ruling, he emphasised that in order to exercise the right to deduct input tax, it is necessary to link the purchased goods and services to taxable activities. If these purchases are used for activities that are exempt from VAT or not subject to VAT, the tax cannot be deducted. In addition, he also drew attention to the principle of immediate deduction of VAT, as soon as the input tax arises. In the opinion of the director of the KIS, the sale of the premises by the company will take place at least after 5 years, for the period in which they will be leased, which lease will be exempt from taxation.

The Provincial Administrative Court in Kraków, in its judgment of 30 January 2024, ref. no. I SA/Kr 1141/23, agreed with the position of the authority and rejected the company’s complaint. In its justification, it emphasised that if the premises are to be rented out for residential purposes, they will be used for VAT-exempt, not taxed, activities. The court held that the concept of waiting to sell (e.g. after 5 years) in order to benefit from the tax deduction could not be accepted. According to the principle of immediate deduction of tax, a taxpayer does not have to wait for the sale or effective use of a good or service in order to benefit from the right of deduction. For this reason, the position of the tax authority is not questioned by the court.

4. Reverse charge mechanism and negative energy or gas prices

The individual tax ruling was applied for by a company that provides brokerage services in the purchase and sale of exchange commodities in its own name, but for the account of its clients. It also participated in OTC (over the counter) market transactions by buying and selling exchange commodities and energy products for its own account in bilateral transactions.

For several months, the company has been analysing a situation where energy or gas prices are negative, through increased supply over demand. The company, for VAT accounting purposes, treats this as a commodity transaction involving the receipt of energy and gas, and the consideration for this service is the value of the energy or gas. As a result of this transaction, there is an actual change of ownership of the energy.

In view of the above, the company posed the following question to the director of the National Fiscal Information: whether, for the purposes of accounting for electricity and gas transactions made at negative prices, the company is entitled, during the period of the temporary reverse charge mechanism for gas in the gas system, electricity in the electricity system and services for the transfer of greenhouse gas emission allowances, to apply the reverse charge mechanism in accordance with the provision of Article 145e(1) of the VAT Act.

In the company’s view, it was entitled to apply the reverse charge mechanism. However, the director of the National Fiscal Information did not agree with.

He was of the opinion that this type of economic event in the light of value added tax should be understood not as a supply of goods, but as the provision of a service by the recipient, consisting in the receipt of goods, as we can read in the justification of the interpretation “The essence of this service is to relieve the energy seller from problems (costs) related to the possession of electricity that is not in demand (the possibilities of storing electricity are very limited).” In the opinion of the tax authority, when a situation occurs in which negative prices arise, there is not a supply of goods, but a supply of a service. Consequently, these activities do not fall within the scope of application of Article 145e(1) of the VAT Act.

Finally, the court of first instance in the judgment of 18 January 2024, ref. III SA/Wa 2124/23 did not agree with the company’s position, indicating that in the case of the occurrence of the so-called phenomenon of negative prices for energy or gas, the reverse charge mechanism will not apply.

The court emphasised that the reverse charge mechanism does not apply to transactions of electricity or gas, as for this mechanism to apply both the conditions of subject, object and to the place where the transaction takes place must be met. In the court’s view, Article 145e(1) of the Value Added Tax Act does not apply to transactions involving the trading of electricity and gas at negative prices, as in this situation we are dealing with the provision of services.