Tax Highlights for Real Estate – July 2023

Definition of a structure contrary to the Constitution – judgment of the Constitutional Tribunal

On 4 July 2023, in the case ref. no.: SK 14/21, the Constitutional Tribunal found the definition of a structure from the Act on Local Taxes and Fees to be contrary to the Constitution. A deadline of January 2025 was set for the parliament to enact new legislation in this respect. In its ruling, the Constitutional Tribunal emphasized that such essential elements of the tax structure as its subject matter, i.e. what should be taxed, were regulated outside the Tax Act, in this case the Building Law, and this prejudices the unconstitutionality of the regulations. The definition of a structure and a building for the purposes of tax law should be redrawn and, as a consequence, the taxpayer should not have any doubts about the tax obligation. To date, there have been numerous doubts, especially with regard to structures. The ruling in question was issued against the background of a case in which the question arose as to whether a silo was subject to property tax. The fact that the TK declared the contested provisions unconstitutional means, in practice, that it will be possible to resume legally concluded proceedings where the subject of taxation was a structure. In addition, this may mean that claims for refunds of overpayments will be legitimate. We will keep you updated on changes to the Local Taxes and Fees Act regarding property tax.

Hotel without building revenue tax

A hotel contract is not in the nature of a lease or rental and is not subject to tax on revenue from buildings. The case analyzed concerned an entrepreneur who provides accommodation and catering services as part of his one-person business activity. In his applications for an individual interpretation of tax law, he indicated that he had, inter alia, two hotels providing accommodation, short-term accommodation and comprehensive training services. His doubts concerned whether he should calculate and pay tax on the income from the buildings in relation to the hotels. In his view, there would be no tax liability in this respect, because the provision of hotel services cannot be seen as the provision of all or part of a building for use under a lease, rental or other similar contract. However, according to the interpreting authority, as of 1 January 2019, minimum income tax has been imposed on all buildings in Poland, regardless of their classification, including residential, non-residential, if they generate revenue from rental, lease or similar contracts. According to the tax authorities, a hotel contract is a non-named, mixed contract containing elements of various contracts. As part of the hotel contract a part of the building is given for use, the provision of a hotel building or of a similar nature is subject to tax on revenue from buildings. The position of the tax authorities was shared by the Voivodship Administrative Court in Gdańsk. In its opinion, since the legislator did not define lease and tenancy in the PIT regulations, the Civil Code should be used. It stated that the essence of the disputed agreements is the provision of a service of at least a similar nature to lease and tenancy. It was not until the NSA that the taxpayer’s position was shared. In his opinion, the hotel contract is named in the law concerning such services and does not have the character of a lease or rental contract.

Possibility of making depreciation deductions on hotel buildings

Under the provisions introduced as part of the Polish Deal, businesses are no longer allowed to make depreciation deductions for flats and houses in 2023. However, according to an individual interpretation by the Director of National Tax Information of 22 June 2023 (No. 0111-KDIB2-1.4010.181.2023.1.AS), this restriction does not apply to hotels. The case in question concerned a limited liability company, co-owner of a seaside hotel. The hotel has 110 suites with kitchenettes, as well as two conference rooms, a restaurant, a bar, underground parking for guests and a leisure area including a swimming pool, saunas and jacuzzi. The accommodation price includes breakfast and use of the sauna, pool and all leisure facilities. There is no possibility of permanent residence in the flats. The premises file shows that the flats have a residential function and are not separated as separate properties. At the same time, according to the permit of the county building inspector, the hotel forms a complex of multi-family residential and commercial buildings. The applicant has classified the building in type 109 of the Fixed Asset Classification “other non-residential buildings”. In the opinion of the authority, in buildings (premises) with various purposes, the classification of an object to the appropriate sub-group and type is determined by its main purpose, and the division of buildings into residential and non-residential in the Classification of Fixed Assets is based on the Polish Classification of Structures. Thus, since the flats are provided in the form of short-term rental and not for permanent residence and the building was classified by the company under NACE 109 as ‘other non-residential buildings – hotels and similar buildings of short-stay accommodation’, it can be depreciated and deducted for tax purposes. The authority agreed that the exclusion of the right to depreciation does not apply to non-residential buildings, even if a service activity of offering accommodation is carried out in the building.