- Classification as a building is not determined by its function, but by its construction – a decisive judgement by the Supreme Administrative Court (NSA; ref. No III FSK 3294/21)
- Commissioning buildings for use with the obligation of an energy performance certificate?
- Automatic qualification of real estate to higher rate is unconstitutional – key justification of the Constitutional Tribunal judgement on real estate tax published
- Depreciation write-offs are not deducted from the real estate tax base – judgement of the NSA of 3 March 2021 (sign. III FSK 999/21)
- Unrealized investment is not a reason to withdraw the deduction
- Successor vs deductible costs in proportion to share
1. Classification as a building is not determined by its function, but by its construction – a decisive judgement by the Supreme Administrative Court (NSA; ref. No III FSK 3294/21)
“Silos understood as building structures used for storing loose materials (grain, fodder, cement, etc.), also called elevators, bunkers and others, may in practice appear building and a structure. Their proper classification is determined by technical criteria listed in Article 1a (1) point 1 of Local Taxes and Fees Act. It is only their exclusion that determines whether a building object is a structure within the meaning of Article 1a (1) (2) of the Local Taxes and Fees Act’– as indicated by NSA in the judgement of 16 March 2021 (III FSK 3294/21).
In accordance with the justification of the NSA’s judgement, it is not the functional criterion alone but the technical criterion which should be decisive for the qualification of an object as a building, which is strictly connected with the conditions set out in Article 1a (1) (1) of the Local Taxes and Fees Act. Therefore, taking the above into account, a building object which is permanently connected with the ground, is separated and has foundations and roof, should be qualified as a building and not a structure. It cannot be ruled out that such objects having the characteristics of a building should only be regarded as a structure. As emphasized by NSA: ‘Therefore, it cannot be assumed a priori that due to the function or purpose of the silos complex, this object ‘ceases to have the characteristics of a building’.
As it was rightly acknowledged, the dynamic development of a socio-economic area also results in changes in tax regulations and often ambiguous factual states cannot be resolved in a uniform manner with respect to each case. It is worth noting that in the case of entities operating in the agricultural area as well as in the food sector, this judgement may be crucial in terms of changes. The qualification of silos as building is connected, first of all, with significantly lower taxation as in the case of considering them as structures.
2. Commissioning buildings for use with the obligation of an energy performance certificate?
The draft Act on the energy performance of buildings (Journal Laws of 2021, item 497) sets out the rules for drawing up energy performance certificates, indicating at the same time the entities that are obliged to provide such certificates for a building or its part. The introduction of the modification to the Act, as indicated, is the implementation of the provisions of Directive 2010/31/EU of the European Parliament and of the Council of 19 May 2010.
Such an obligation would be imposed on entities commissioning buildings for use, including, i.e. the owner or manager of building or a part of a building, or a person with a cooperative ownership right to premises or a person with a cooperative ownership right to premises, who disposes of a building or a part of a building under a sale agreement, dispose of a cooperative ownership right to premises under a sale agreement, as well as to leased premises.
It is also worth mentioning that this is not the only change. The draft law also provides for a more clearly defined system of sanctions, which is to lead to improved verification of certificates, as well as protocols from inspections of the heating system and the air conditioning system.
What is the purpose of the changes? First of all, to increase efficiency in relation to the energy sphere of buildings, and even minimize the problems associated with the interpretation of the current provisions in relation to the energy passports of buildings. It is assumed that these regulations would come into force still in 2021.
3. Automatic qualification of real estate to higher rate is unconstitutional – key justification of the Constitutional Tribunal judgement on real estate tax published
The verdict of the Constitutional Tribunal of 24 February 2021 (ref. act SK 39/19), concerning taxation of real estate of a person conducting business activity, was published already in February this year, however, it was not until the end of March that its justification was published. The judgement entities not only to a lower tax for companies, but also to the recovery of overpayments for the last 5 years by entrepreneurs who are in possession of private real estate and do not use it for their business activity.
It should be emphasized that CT indicated that legal regulations obliging to impose tax on entrepreneurs owning land, a building or a structure is unconstitutional. Before the statement of reasons was issued, there was a view that the judgement concerned only natural persons, however, after the detailed statement of reasons was published, it appears that it also covers legal person.
This is to be confirmed by the operative part of the judgement, which indicates that: ‘Article 1a (1) (3) of the Act of 12 January 1991 on Local Taxes and Fees (Journal of Laws of 2019, item 1170), understood in such a way that the connection of land, building or structure with the conducts of economic activity is determined exclusively by the possession of the land, building or structure by an entrepreneur or other entity conducting economic activity, is inconsistent with Article 64 (1) in connection with Article 31 (3) and Article 84 of the Constitution of the Republic of Poland’.
4. Depreciation write-offs are not deducted from the real estate tax base – judgement of the NSA of 3 March 2021 (sign. III FSK 999/21)
A foregoing doubtful interpretation of legal provisions in the Local Taxes and Fees Act was the appropriate determination of the tax base in the case of improvements to buildings. In such a situation there is a change in the tax base when calculating the real estate tax.
Problems also arose with respect to the possibility to reduce this basis by realized depreciation write offs, which until then had not been certain. Judgement of the NSA of 3 March 2021 (sign. No. III FSK 999/21) was to clarify the issue by, incl. recognizing the principles of taxation of fully depreciated structures.
The case concerned a company which recognized the taxable basis for real estate tax as tax net basis as at 1 January in the year in which the last depreciation write off was made, retaining the depreciation write offs made at that time. The authority, disagreeing with the company’s position, stated that the company incorrectly determined the tax base and it was not possible to reduce it by the depreciation write offs.
It is worth mentioning that over the last 2 years, the jurisprudence has maintained the view that in the case of depreciated structures, the gross initial value should be considered as the tax base, an example is the judgement of the Province Administrative Court in Kielce of 13 February 2019 (ref. I SA/Ke 3/19). However, according to the NSA of 3 March 2021. ‘(…) depreciation deductions made on the basis of regulations implementing the Corporate Income Tax Act, as well as the revaluation of fixed assets made on the basis of those regulations, cannot affect the determination of the initial value of structure for real estate tax purposes’. Taking this standpoint into consideration, the NSA, while disagreeing with the standpoint of the Province Administrative Court in Kielce, pointed out that capital allowances should no longer be taken into account in the case of fully depreciated buildings or those which are being depreciated. In justifying its attitude, it pointed out that a structure, after any depreciation, would be subject to large reduction.
This position indicates that taxpayers will not be entitled to modify the value of the tax base in the event of termination of depreciation.
The doubts of the courts, indicated above, prove above all the complication of the regulations in force in the area of real estate tax, thus indicating that the current practices are still not clearly defined.
5. Unrealized investment is not a reason to withdraw the deduction
It is not possible to completely prohibit the reimbursement of input VAT due to an unrealized investment, the Court of Justice of European Union ruled on 18 May 2021 (ref. C 248/2).
In the opinion of the CJEU, in the event that, a taxpayer has not made a planned investment, he is entitled to deduct input VAT. In the case at hand, the facts concerned a company which was planning to lease an office building constructed earlier. However, the lessees informed about their resignation from the potential lease. As a result of this situation, the tax authority, considering the above, indicated that the withdrawal from the project generates an obligation to return the deducted tax, justifying that in fact the transaction did not take place, so the taxpayer has no right to deduct VAT.
The CJEU, in presenting its contrary position, pointed out that the right to deduct exists even in the event that the tax was not actually charged correctly or in the event that the taxpayer did not use the goods that he purchased but did not use and which gave him the right to deduct. The Court referred to Article 137 (2) of the VAT Directive, which refers to the possibility for Member States to determine the rules for deduction without infringing Articles 167 and 168 of the VAT Directive, and a refund of the deduction would constitute such an infringement.
6. Successor vs deductible costs in proportion to share
‘(…) The Applicant may include as deductible costs for the sale of an inherited flat the costs of acquisition of the flat incurred by the decedent for the acquisition of the flat, in connection with the Applicant’s inheritance of a share in the flat, and not the whole flat’ – so stated the Director of the National Fiscal Interpretation in the tax ruling of 15 March 2021 (0113-KDIPT2-2.4011.952.2020.2.AKR).
The factual situation in the tax ruling referred to the situation in which the Applicant inherited half of the flat, not all of this part, which was subsequently sold. The Applicant’s doubts were raised by the fact of determining the appropriate tax and then deducting the expenses previously incurred for the purchase.
It is worth to pointing out that in accordance with Article 22 (6d) of the Personal Income Tax, documented expenses which increased the value of property and property rights acquired as an inheritance, donation or in any other gratuitous manner are considered tax deductible expenses, made during their ownership, and the amount of the inheritance and donation tax paid in such a part in which the value of the sold property or right accepted for taxation with inheritance and donation tax corresponds to the total value of property and property rights accepted for taxation with inheritance and donation tax.
Taking in mind that in the tax ruling, the factual state concerned a taxpayer who inherited half, and not the entire residential part, the authority reasonably held that the entity is obliged to take into account the expenses in proportion to the part of the apartment owned, and not the entire premises.