Tax Highlights for Real Estate – March 2024

1. The company that owns the hotel is not a real estate company

Provincial Administrative Court in Gdansk in the judgment of 19 March 2024, ref. I SA/Gd 43/24 found that the company that owns the hotel is not a real estate company. The tax authority pointed out that the hotel contract is an unnamed, mixed contract that contains elements of a lease contract. Therefore, it is similar to a lease agreement regulated in the Civil Code. This would mean that revenues from hotel services should be included in the revenues listed in Art. 4a point 35 of the CIT Act. The Provincial Administrative Court did not agree with this and pointed out that, contrary to the tax authorities’ claims, it is difficult to consider that a hotel service is similar to a rental service. The judgement is in line with the courts’ interpretative line.

2. Family foundation may be considered a VAT payer

Tax ruling of 14 September 2023, ref. 0114-KDIP1-3.4012.488.2023.1.KP confirms that a family foundation may be considered a VAT payer if it sells property for profit-making purposes. According to the actual situation, the activities of a family foundation are to include, among others: selling property and running a business. The tax authority confirmed that the foundation may be a VAT payer because it conducts business activity in the field of selling property. This decision has significant tax consequences for family foundations and may require compliance with applicable tax regulations.

3. Granting a loan to a related entity results in the obligation to recognize income from hidden profits

Provincial Administrative Court in Poznan in the judgment of 29 February 2024, ref. I SA/PO 804/23 indicated that granting a loan to a related entity results in the obligation to recognize income from hidden profits. The amount of a loan granted by a taxpayer to a shareholder or an entity related to a shareholder is expressly mentioned in Art. 28m sec. 3 point 1 of the CIT Act as falling within the scope of the concept of the so-called hidden profits. Taking into account that linguistic interpretation is the starting point for the interpretation of law and determines its limits, the Court assumed that in Art. 28m sec. 3 of the CIT Act, the legislator included a legal definition of hidden profits, using the phrase “in particular”. Where a given wording is preceded by the phrase “in particular”, there is no doubt that the benefit calculated after such wording falls within the concept of hidden profits.

4. Possessing a property to be demolished precludes relief from tax on civil law transactions (TCLT)

In accordance with the tax ruling of the Director of the National Tax Information of 13 March 2024, ref. 0111-KDIB2-3.4014.12.2024.3.AD, if the construction supervision authority has not issued a ban on the use or an order to demolish a single-family house, it is still treated as a residential building. This means that owning such a house excludes exemption from TCLT when purchasing the first apartment. This decision is due to the fact that the house can still be used for residential purposes, even if it is in poor technical condition.

5. VAT on the assignment of the development contract

The Supreme Administrative Court has not yet issued a resolution regarding VAT rates applicable to the assignment of development contracts. The decision is on hold and the issue of the appropriate tax rate remains unresolved. Additional ambiguity was introduced by the CJEU judgment of 17 October 2019 (C-692/17) and previous judgments of Polish courts. The issue concerns not only tax rates, but also the qualification of assignment as a supply of goods or provision of services. The Supreme Administrative Court found it necessary to conduct an in-depth analysis of all factual circumstances related to the assignment of the development contract.