The Ministry of Finance has published the long-announced draft of changes to regulations, among others: on real estate tax. The need for changes results from the judgment of the Constitutional Tribunal of July 4, 2023 (file no. SK 14/21), which imposed on the legislator the obligation to change the provisions in order to ensure the compliance of the definition of the subject of taxation (structure and building) with the Constitution. The changes are to enter into force on January 1, 2025
Contrary to the announcements of the Ministry of Finance, the planned changes contain many important novelties. Instead of the remaining status quo announced by the Ministry of Finance, it seems that for many taxpayers the amendment will result in an increase in the real estate tax burden.
Structures
Contrary to expectations, changing the definition of a structure in the Act on Local Taxes and Fees (POL Act) does not consist only in transposing the definition from the Construction Law to the POL Act. The new definition consists of five sub-items listing categories of structures.
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Current regulations |
Proposed changes from January 1, 2025 |
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Structure - a building object within the meaning of the provisions of the Construction Law, which is not a building or an object of small architecture, as well as a construction device within the meaning of the provisions of the Construction Law related to a building object, which provides the possibility of using the object in accordance with its intended purpose |
Structure: a) objects listed in Annex No. 4 to the POL Act, as well as installations and devices, if they constitute a technical and operational unity with this object, b) construction parts of devices that do not constitute part of the structures referred to in point (a). and, c) construction parts of wind farms and nuclear power plants, d) foundations for machines and devices, technically separate from these machines and devices, e) connection to the building object – made using construction products |
A structure can be made in another place
The common feature of above-mentioned categories of structure is that they do not have to be "built" as before, but only "made" using building materials. Such construction of the provision may eliminate the argument that in order to tax an object as a structure, such object has to be built during the construction work at its destination.. Therefore, it seems that from 2025 there will be no obstacles to taxing as a structure, e.g. free-standing devices or tanks made in a factory, which were just placed on the taxpayer's premises without the need for further construction work.
Attachment with a list of structures
There are many changes in the definition of a structure. The most important change seems to be the introduction of a catalog of objects constituting structures in the new Annex No. 4 to the POL Act. The appendix is divided into 28 items, each of which lists several categories of objects. Unfortunately for taxpayers, the Annex contains many objects for which there have been different approaches as to whether these objects are subject to RET at all, as well as objects which, depending on the physical characteristics of a specific case, could be subject to taxation as structures or buildings, among others: tanks (of any type, item 7 of the Annex), container facilities (item 8 of the Annex), tent covers and pneumatic covers (item 10 of the Annex), free-standing technical devices permanently attached to the ground (item 26 of the Annex; this means that devices that do not have a foundation/construction part may also be subject to taxation) and networks (item 12 of the Annex).
Structures not only in the annex, the return (?) of the technical and operational unity
Moreover, in addition to the objects indicated in the new Annex No. 4, the new definition of taxable structures will also include other objects, including installations and equipment, if they constitute a technical and operational unity with the object listed in Annex No. 4. The proposed regulations do not specify what categories of installations and technical devices are concerned. The criterion determining whether these unspecified technical installations and devices will be subject to taxation is whether they constitute a technical and operational unity with the facility listed in Annex 4. According to the justification for the draft amendment, the new definition of a structure comprises trafo-stations, switchboards and batteries connected to the network. These changes are definitely negative for taxpayers.
The concept of a technical and operational unity was in force in the real estate tax regulations before June 28, 2015. However, it should be emphasized that in that legal situation, this concept was not defined in the provisions. However, the draft amendment contains a legal definition of this concept, according to which “technical and operational unity” is a set of elements that are necessary to achieve a specific economic purpose, connected to each other in such a way that none of them can achieve this purpose alone, and the lack of any of these elements makes its impossible to achieve that purpose. The new definition of the technical and operational unity raises doubts whether the existing case law may be applied, which does concern the subject of the technical and operational unity, but was issued on the basis of a different state of law.
Other categories of structures
The other categories listed in the new definition of structures are:
- construction parts of devices that do not constitute part of the structures referred to in point a - therefore, these are construction parts of devices that are not part of a structure consisting of an object listed in Annex 4 to the POL Act and installations and devices constituting a technical and operational unity with it. According to the justification for the draft amendment, these include e.g.: construction parts of industrial boilers and furnaces. However, there may be doubts when verifying whether a facility with a construction part falls into the category of point a (then it would be subject to taxation in total), or not (then only the construction part would be subject to taxation),
- construction parts of wind farms and nuclear power plants,
- foundations for machines and devices, technically separate from these machines and devices,
- connections to the building object.
The justification for the draft amendment is silent about the last three categories of structures. Doubts may concern the following issues:
- what will be the consequences of the fact that in the proposed point regarding construction parts of wind farms and nuclear power plants, the solar power plants (photovoltaics) were not mentioned?
- what are the differences between the devices referred to in point b (in the case of which the subject of taxation is the construction part) and the devices referred to in point d (where the subject of taxation is the foundation)?
The new definition of a building
The amendment also introduces a new definition of a building:
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Current regulations |
Proposed changes from January 1, 2025 |
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building - a building object within the meaning of Construction Law that is permanently attached to the ground, separated from the space by building partitions and has foundations and a roof |
building - an object, together with installations ensuring its intended use, made using construction products, which is permanently attached to the ground, separated from the space by building partitions and has foundations and a roof, also if it is part of the object mentioned in the item. 1-6 of Annex 4 to the POL Act; |
Structures inside the buildings
Installations ensuring the ability to use the building in accordance with its intended purpose
On the one hand, the proposed new definition of a building clearly indicates that installations ensuring the ability to use a building in accordance with its intended purpose are not subject to taxation separately from the building (in such a case, the building is subject to taxation and the tax is charged on its usable area as before). In the justification for the draft amendment, this type of installation includes facilities such as: electricity, water supply, sewage, heating, telecommunications and gas installations located inside the building and constituting its integral part.
Structures not constituting integral part of the building are subject to separate taxation
At the same time, the draft amendment stipulates that network structures (examples in the justification for the amendment include: gas networks, electricity networks) located inside buildings may be subject to taxation as taxable objects (structures) separate from buildings. "Networks" are indicated in item 12 of the new Annex No. 4. According to the authors of the amendment, the criterion allowing for separate taxation of a building and the structures located inside the building will be that the structure does not constitute an integral part of the building. Therefore, the question arises - how to distinguish installations ensuring the ability to use the building in accordance with its intended purpose (not subject to separate taxation) from structures that do not constitute an integral part of the building. Such doubts will probably arise among many taxpayers, especially those who own buildings equipped with industrial installations and devices. Due to the lack of details in the proposed regulations and the justification for the amendment, this topic will probably be the source of tax disputes.
The boundary between a building and a structure / the part of a structure may be a building
According to the justification for the draft amendment, one of the goals of the amendment is to eliminate doubts as to whether and which objects should be classified as buildings (taxed on their usable area) and which should be classified as structures (taxed on their value).
The draft amendment provides for categories of structures in the case of which, despite being listed in the proposed Annex No. 4 (i.e. a new annex to the POL Act, containing a catalog of structures), part of them may be a building (i.e. subject to taxation on the usable area) instead of taxation on value as structures.
Importantly, the possibility of taxing part of an object as a building applies only to objects (structures) from item 1-6 of Annex No. 4 to the POL Act, e.g. sports facilities, water treatment plants, sewage treatment plants.
In the opinion of the authors of the amendment the objects from item 1-6 of Annex 4 to the POLAct are complex and heterogeneous objects, in the case of which it should be possible to recognize some of such objects as a building. This possibility applies only to the objects indicated in item 1-6 of Annex 4. It does not apply to other objects, including e.g.: landfills, networks.
Permanent attachment to the ground – a new definition
The draft amendment also provides for the introduction of a definition of a permanent attachment to the ground. According to the intention of the authors of the draft amendment, a “permanently attached to the ground” is to be understood as: such a connection of a building object with the ground that ensures its stability and the ability to counteract external factors that may destroy it, cause it to move or move to another place.
It is worth emphasizing that the circumstance of being or not permanently attached to ground applies not only to the building, but may also affect the necessity to tax devices and installations on their value as structures. Annex No. 4 (structures’ catalog), item 26 indicates that the taxable structure will include, among others: a container facility permanently attached to the ground (item 8 of the Annex), or free-standing and permanently attached to the ground: antenna mast, advertising board and advertising device, external lighting, industrial installation and technical device (item 26 of the Annex).
Auxiliary application of existing case law
In the justification for the draft amendment, the authors of the amendment indicate the possibility of auxiliary application of the existing case law. Bearing in mind that the amendment introduces completely new legal definitions (not only the definition of a building, a structure, but also a technical and operational unity or a permanent attachment to the ground), the extent to which case law issued in a different legal state will apply, may raise doubts.
Other changes
The amendment also provides for changes in the following topics:
- Change in the rate for multi-car garages in residential buildings - a multi-car garage in a residential building is to be taxed at the rate for residential buildings (i.e. the lowest tax rate available).
- Changes to the exemption:
- railway - exclusion of the application of the exemption for railway infrastructure in the scope of land, buildings and structures constituting a freight terminal,
- for land, buildings and structures within the air parts of public use airports - limiting the exemption to land occupied for buildings and structures covered by this exemption,
- for research institutes - limiting the scope of the subjective exemption only to real estate or parts thereof occupied for the activities referred to in Art. 2 section 1-3 of the Act on Research Institutes.
To sum up, despite the Ministry of Finance's announcements about remaining status quo, the planned changes introduce many new concepts, including those probably expanding the catalog of taxable structures and areas that raise new interpretation doubts. Therefore it is worth monitoring the ongoing legislative process. Real estate tax constitutes a significant burden on the activities of many taxpayers, so we will keep you informed about the next steps regarding changes to real estate taxation that the legislator, in accordance with the judgment of the Constitutional Tribunal, is obliged to introduce from January 1, 2025.
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