Tax Highlights for Real Estate – November 2022

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1. Excise tax – Changes planned for owners of photovoltaic installations
2. Does the acquisition and lease of real estate located in Poland actually creates a foreign establishment in Poland?
3. Withdrawal of a non-cash contribution from a limited partnership as tax income on the part of the withdrawer
4. Delay in the possibility of applying the tax exemption on dividends and income from the sale of shares in a subsidiaries obtained by holding companies until 2024
5. A corrective invoice is not sufficient to be a sole base to lower the VAT tax base
6. The installation of an access control system is a modernization of a third-party fixed asset, not a renovation
7. Is the construction of a photovoltaic farm a single service from the point of view of VAT?
8. The tax base of a fixed asset and depreciation write-offs

Excise tax – Changes planned for owners of photovoltaic installations

On November 3, 2022, a Government bill amending the Excise Tax Act and certain other laws (UD 428) was submitted to the Parliament.

Among numerous amendments, the bill contains, inter alia, changes for photovoltaic panel energy producers. These changes include an extension of the exemption from the obligation to maintain electricity records to entities that produce this energy from generators with a total capacity under 1 MW, regardless of whether or not the energy is supplied to installations that are connected and cooperating with each other.
Currently only entities that produce electricity from generators with a total capacity under 1 MW and which they consume in full are exempt from the obligation to maintain quantitative records of electricity. This means that if a photovoltaic energy producer has a connection to the grid (the ability to give away surplus energy), he is obliged to keep such records. The amended regulations will provide an exemption from said obligation as long as the energy will be produced from generators with a total capacity under 1 MW.

In addition, the bill introduces a specific method of evidencing energy production data from renewable sources in case of lack of metering equipment. Such evidencing will be made on the basis of a coefficiently determined level of energy consumption by individual equipment, indicated in the taxpayer’s records. In other words, the taxpayer is to obliged to estimated quantities taking into account the information indicated in the bill.

Does the acquisition and lease of real estate located in Poland actually creates a foreign establishment in Poland?

Activities undertaken by a foreign entity in Poland, consisting solely of earning income from real estate located in Poland without a relevant corporate structure, do not create a permanent establishment in Poland, according to an individual tax ruling issued by the Director of National Fiscal Information issued on October 24, 2022 (ref. 0111-KDIB1-2.4010.595.2022.2.MS).

The application for this ruling was submitted by a Czech investment Fund operating in a form similar to a Polish joint-stock company. The Fund indicated that its business activities in Poland consist of leasing commercial and office space in real estate properties owned by it, located in Poland. In addition, the Fund also holds 100% of shares in two real estate companies based in Poland. Apart from the income generated from real estate, the Fund does not conduct any other business activities on the territory of Poland.

The Fund asked whether or not its activities consisting of the acquisition and rental of real estate located in Poland create a permanent establishment in Poland.

The Director of the National Tax Information agreed with the Fund’s position, according to which the purpose of the real estate is solely to generate passive income / revenue, and that they are the subject of the Fund’s business activity, but do not on their own function as a permanent establishment. Thus, the Fund earns only passive income / revenue from real estate located in Poland.

In other words, activities carried out in the territory of Poland, which consist solely of earning income from real estate located in Poland without a corresponding corporate structure, do not create a permanent establishment.

Withdrawal of a non-cash contribution from a limited partnership as tax income on the part of the withdrawer.

A limited partner’s withdrawal of one of several in-kind contributions from a limited partnership (pol. “spółka komandytowa”) through an in-kind return (transfer of ownership of the in-kind contribution) generates a taxable income in CIT for this partner – this was the opinion of the Director of the National Tax Information, expressed in the individual tax ruling dated October 21, 2022, no. 0111-KDIB1-1.4010.537.2022.2.AND.

The applicant asked if the withdrawal (return in kind) of a contribution (share on the ownership of real estate), that he made to the limited partnership when said partnership was not yet a CIT taxpayer, would constitute taxable income on his part.

The applicant presented the standpoint that no income would arise on his side under such circumstances, as it would not receive an actual economic benefit of a concrete financial dimension.

The Director of the National Tax Information Administration disagreed with the abovementioned opinion, pointing out that the generation of income from participation in the profits of legal persons, representing income actually earned from such participation, including income from the reduction of a partner’s capital share in a company (i.e., a limited partnership, among others), is directly implied by Article 7b(1)(1)(d) of the CIT Act.

Delay in the possibility of applying the tax exemption on dividends and income from the sale of shares in a subsidiaries obtained by holding companies until 2024

In rulings no. 0111-KDIB1-3.4010.445.2022.1.JKU of September 7, 2022, no. 0111-KDIB2-1.4010.174.2022.2.MK of September 27, 2022, and no. 0111-KDIB1-3.4010.456.2022.3.IZ of October 7, 2022, the Director of the National Tax Information stated that the tax exemption on dividends and on income from the sale of shares in a subsidiaries, derived by holding companies, can be applied only from 2023.

One of the conditions for applying the exemption is holding directly, continuously for at least one year, at least 10 percent shares (stocks) in the capital of a subsidiary. According to the tax authority this one-year period should be counted from the date those provisions entered into force i.e. from January 1, 2022. This means, that technically the exemptions could be applied at the earliest from January 1, 2023.

However, the abovementioned one-year period will be additionally extended based on the provision of an amendment act of October 7, 2022. According to this act, holding companies will be entitled to take advantage of the exemption only after two years of holding shares in a subsidiary. In practice this means that the exemption will be possible to apply at the earliest from January 1, 2024.

A corrective invoice is not sufficient to be a sole base to lower the VAT tax base.

In the judgment of October 28, 2022, ref. III SA/WA 1005/22, the Voivodeship Administrative Court in Warsaw confirmed the stance of the Director of the National Tax Information regarding the conditions required to correct the tax base in VAT.
According to Article 29a(13) of the VAT Act, in cases specified in Art. 29a(10)(1-3), the reduction of the tax base is made in the period in which the taxpayer issued a correcting invoice provided that, among others, the taxpayer possesses documentation confirming that he has agreed with the buyer of the goods or the recipient of the service as to the conditions for lowering the tax base for the supply of goods or services specified in the correcting invoice.
According to the tax authority, issuing a correcting invoice does not equate possessing the abovementioned documentation. The invoice is only a carrier of information about the reduction of the tax base and in itself cannot be the basis for this reduction. In other words, irrespective of its issuance, the taxpayer must document that he has agreed with the buyer of the goods or the recipient of services the conditions of reducing the tax base.

The installation of an access control system is a modernization of a third-party fixed asset, not a renovation

In the interpretation no. 0111-KDIB2-1.4010.460.2022.1.MKU of 7 October 2022, the Director of the National Tax Information stated that the installation of a access control system in a third-party fixed asset consist an improvement of that fixed asset. According to the tax authority, the carried out works were of an adaptive nature, giving the building a new functionality, primarily due to the installation of new devices enabling business operations, which excludes the recognition of the performed works as renovation.

Is the construction of a photovoltaic farm a single service from the point of view of VAT?

Obtaining electricity from renewable sources is an increasingly popular form of investment in Poland. It involves the construction of farms (e.g. photovoltaic), which is a complicated, multi-stage process. For this reason, many investors opt for a ‘turnkey’ method of constructing farms, which includes the main service (construction of the farm and its installation to the electricity grid) and additional services (e.g. design, supply of transformers, construction of internal roads, installation of fencing, maintenance and repair under warranty).

One Company, that carried out installations with a connection in the abovementioned way, applied for a tax ruling regarding the manner of accounting for VAT in connection with the construction and servicing of photovoltaic installations (ref. 0111-KDIB3-1.4012.257.2020.2.IK). The Company took the position that all the services it performed constituted a comprehensive service due to the common economic purpose and the fact that the performance of additional services was necessary to benefit from the basic service.

The tax office disagreed, stating that the services performed by the Company could be provided independently of each other and that the additional services did not directly serve to perform the main service.

The Supreme Administrative Court (NSA), in a judgement of 29 September 2022, ref. I FSK 1047/21, resolved the case by indicating that services leading to the construction of installations and their connection to the electrical grid may be of a comprehensive nature, however, the services of constructing an internal road and fencing should be treated as separate.

The tax base of a fixed asset and depreciation write-offs

A Company that owns a commercial building with premises for rent asked the Director of the National Tax Information whether the tax base in the tax on revenues from buildings (Art. 24b par.3 of the CIT Act) should take into account depreciation of the building.

Pursuant to the CIT Act, the tax base in the tax on revenues from buildings is the initial value of a fixed asset determined as at the first day of each month, resulting from the fixed asset register. According to the Company, under this provision, the tax base should be reduced by the value of depreciation write-offs made in the preceding months. In its reasoning, the claimant cited a similar position of The Voivodship Administrative Court (WSA) in Warsaw expressed in its judgment of 17 April 2019. (ref. III SA/Wa 1905/18).

The Director of the National Tax Information, in a tax ruling of 12 October 2022 (ref. 0114-KDIP2-1.4010.56.2022.1.MR) disagreed with the Company’s position. The authority concluded that according to the systemic interpretation, depreciation write-offs should not be deducted from the initial value in order to calculate the tax base of the tax on revenues on buildings. The Director of the National Tax Information indicated that the initial value of a fixed asset as at the first day of each month should be determined as the gross initial value, without deducting depreciation write-offs.

The initial value may be changed due to improvements or detachment of components. This understanding of initial value stems from the very nature of the tax on revenues from building, the amount of which should depend on the return from the property and its ability to generate income. According to the Director of the National Tax Information „reference to the gross value allows for an even distribution of the tax burden over time”.