- Prosument for tenants
- Maximum electricity prices in 2023. – Potential exemption from CIT
- Establishment of a photovoltaic farm and CIT settlements
- Simplifications in excise duties
- The question of whether a turnkey photovoltaic farm service should be considered as a single composite service in light of the rationale for applying the reverse charge mechanism
- Can the construction of a photovoltaic farm be considered a long-term public infrastructure project?
1. Prosument for tenants
The Tenant Prosument is an institution designed to encourage the use of renewable energy sources also in multi-apartment buildings and is aimed at housing associations and cooperatives. Until now, residents of flats have not been able to take advantage of the opportunity to reduce their electricity bills with a photovoltaic installation. With the introduction of the Collective Prosument, residents of multi-apartment buildings were given the opportunity to install photovoltaic installations, but due to a lack of funding for such costly investments, it was not possible to take advantage of them.
The Tenant Prosument, introduced by the Ministry of Development and Technology, offers the possibility to recover 100% of the value of the energy transferred to the energy system and receive a 50% subsidy for the installation. It seems very important that the new grant will be able to be used to upgrade the installation if its capacity is increased by at least 25 per cent, and not just to build a new installation. The regulations for the prosumer tenant stipulate that the owner’s income will reduce the maintenance costs of the building and all energy that will be fed into the grid is to be billed monthly to the seller at wholesale prices and credited to the owner’s account.
The call for applications for photovoltaic financing is being conducted by the Ministry of Development and Technology together with the Bank of National Economy, to which the application should be addressed. Such applications can be submitted by owners and managers of multi-family buildings from 1 February 2023.
2. Maximum electricity prices in 2023. – Potential exemption from CIT
Compensation for energy suppliers – Article 8 of the Law on emergency measures to limit the level of electricity prices and support for certain consumers in 2023.
The Act provides for compensation for energy companies listed in Article 8(2) (of the Act of 7 October 2022 on special solutions for the protection of electricity consumers in 2023 in connection with the situation on the electricity market) supplying energy to eligible consumers with a price cap. The amount of compensation is the product of the amount of electricity consumed in a given month and the difference between the reference price the maximum price, for each electricity consumption point.
Compensation shall be paid at the request of the entitled entity for each month and in the amount calculated by the entity. They are due for the period from the date on which this eligible customer exceeds the electricity consumption limit until 31.12.2023. Applications must be submitted by the 25th of each month following the billing period in question.
Entrepreneurs may doubt whether they should pay income tax on the compensation they receive. We learn from Article 12(4)(14) of the CIT Act that income does not include, inter alia, the value of gratuitous or partly gratuitous benefits financed from state budget funds under government programmes. The CIT Act draws a distinction between pecuniary and non-pecuniary benefits, explicitly indicating when a regulation applies only to non-pecuniary benefits. The said provision excludes both pecuniary and non-pecuniary benefits from revenue. Compensation to energy companies should be treated as de minimis aid and as such should not constitute income.
3. Establishment of a photovoltaic farm and CIT settlements
In recent years, there has been a growing interest in photovoltaic farms because of the possibilities of generating energy in an environmentally friendly way. The possibility of receiving subsidies is a motivating factor for those wishing to start investing, so it is not surprising that they are gaining popularity among investors. One of the most common questions about investing in a photovoltaic farm is the taxes involved.
One such question became the subject of consideration in an Individual Interpretation by the Director of the National Fiscal Information of 0111-KDIB1-3.4010.372.2022.1.PC dated 22 August 2022 and concerned the issue of CIT settlement in connection with the establishment of a photovoltaic farm. The facts presented by the Company showed that it is a Polish tax resident and that it is subject to unlimited tax liability in Poland. The investment is finished, which means that the photovoltaic farm is complete and operational.
The company incurred a number of costs in connection with the aforementioned investment in the construction of the photovoltaic farm, among them the fees associated with connecting the photovoltaic farms to the power grid. The company’s doubts concerned whether it was possible to increase the initial value of fixed assets resulting from the investment by the amount of the connection fee. Consequently, can these expenses be accounted for in proportion to the initial value of the individual fixed assets comprising the photovoltaic farm. In the company’s view, it was obvious that in order to carry out test runs of the farm it would be necessary to connect it to the power grid.
It should be noted that in order for the value of the grid connection fee to be included in the initial value of the fixed asset, the expenditure on this fee should be qualified from the point of view of the statutory definition of the scope of production cost, taking into account the components not included in the production cost.
The Director of the National Fiscal Information was of the opinion that the cost of the grid connection fee is not connected with the very process of manufacturing the photovoltaic farm and therefore does not increase its value. Consequently, it should be concluded that the expense for the connection fee does not increase the cost of production of the fixed asset referred to in Article 16g(4) of the CIT Act does not constitute an element of the initial value.
4. Simplifications in excise duties
The amendments to the Excise Duty Act, which came into force at the beginning of the year, result in favourable changes for small renewable energy producers and also for municipalities using renewable energy sources. The wording of the previous regulations often raised a number of interpretation questions.
In order to meet the expectations of taxpayers, the authors of the amendment aim to unify and simplify the provisions. One of the changes introduced is the extension of the existing exemption from excise duty for passenger cars being hybrid vehicles powered by external energy with a combustion engine capacity not exceeding 2000 cm3. This exemption is extended until 31 December 2029.
In addition, with regard to the obligation to keep records, simplifications are designed for entities producing electricity from generators with a total capacity not exceeding 1 MW. On the other hand, for entities producing electricity from renewable energy sources from generators with a total capacity not exceeding 1 MW and consuming it, simplifications are introduced with regard to the obligation to submit a tax return.
The changes are also beneficial for local government units if they produce electricity from renewable energy sources in their organisational units. The changes consist of simplifications with regard to the obligation to register, submit a tax declaration or keep records. The amendment to the Excise Duty Act also introduces changes relating to coal products, introducing an obligation for the final coal buyer to declare the intra-Community purchase of such products on a tax declaration instead of on a simplified declaration.
What remains in terms of excise duty, however, are other entities that produce energy from RES, even for their own use, if the rated capacity of their installation exceeds 1Mw. This mainly concerns housing associations, which will additionally have to face the problem of taxing the resale of such produced electricity to third parties, such as tenants. The latter also applies to installations with a lower power rating.
5. The question of whether a turnkey photovoltaic farm service should be considered as a single composite service in light of the rationale for applying the reverse charge mechanism
The provision of a service for the construction of a photovoltaic farm involves the performance of a number of works, such as the construction of a road and the installation of a fence. A company executing an investment in the form of the construction of a photovoltaic farm, being a subcontractor of the general contractor, raised a doubt whether it performs one service, which is classified under PKWiU code 33.20.50.0, or whether it is several separate services, among which road construction and fence erection were to be accounted for using the reverse charge mechanism.
In describing the facts, the company indicated that it was carrying out turnkey installations of a photovoltaic farm together with a connection. Therefore, it requested an individual interpretation to confirm that the then applicable reverse charge mechanism did not have to be applied. The company’s position was that it was performing a single comprehensive service and that dividing it was an artificial division that had no substantive or economic justification. The complete installation of the photovoltaic farm is the main service, while the design service, maintenance and repair services and the aforementioned services for the installation of the fence and the construction of the internal road are essential ancillary services.
The authority considered the Company’s position to be incorrect, stating that, in principle, each service should be treated as separate and independent for VAT purposes. Ultimately, the case ended up before the Supreme Administrative Court, which, in a judgment of 29 September 2021 with case number I FSK 1047/21, relied on the position of the Court of Justice of the European Union, which gave separate character to the key services in the case. It was emphasised that there are indeed situations in which it is not possible to separate such services. However, the Supreme Administrative Court stated that in this particular case, given the nature of the work performed, these services should be treated as separate. Qualifying the services in question in this way translates directly into qualifying the VAT settlement on a reverse VAT basis.
6. Can the construction of a photovoltaic farm be considered a long-term public infrastructure project?
The special purpose vehicle established for the purpose of constructing a photovoltaic farm raised doubts as to whether the photovoltaic farm, which is the subject of the investment, would constitute a long-term public infrastructure project referred to in Article 15c(10) of the Corporate Income Tax Act of 15 February 1992 in connection with the financing of that investment based on loans and credits granted by entities related and unrelated to the Company. Qualifying the investment as a long-term public infrastructure project would allow the costs of debt financing of the photovoltaic farm to be disregarded when calculating the excess cost of debt financing.
The Director of Tax Information took the position that the said investment is not a public infrastructure project, arguing that the term is not defined in the Corporate Income Tax Act. In addition, using the provisions of the Real Estate Management Act and the case law of the administrative courts, the Authority argued that the nature of a public purpose investment is limited to those investments that involve the construction and maintenance of equipment for the transmission of electricity.
As a consequence of the dispute between the Authority and the Company, the case went before the Provincial Administrative Court, which noted that the provisions of Article 15c(10) and (8)(1- 4) of the Corporate Income Tax Act of 15 February 1992 implement the ATAD Directive. Pursuant to Article 4(4)(b) of the ATAD Directive, Member States may exclude from the scope of paragraph 1 the excess borrowing costs incurred for loans used to finance a long-term public infrastructure project where the project developer, borrowing costs, assets and income are wholly within the Union.
The ATAD Directive considers a public infrastructure project to be a project for the provision, upgrading, operation or maintenance of a significant asset, which the Member State concerned considers to be in the general public interest. The Provincial Administrative Court found the Authority’s position that the construction of a photovoltaic farm cannot be considered a long-term public infrastructure project under Article 15c(8)-(10) of the CIT Act to be incorrect.