Recent developments, in particular CJEU judgments (i.e. Titanium case; C-931/19 and Berlin Chemie case; C-333/20) may impact the position of the Polish tax authorities in reference to the creation of a VAT fixed establishment (FE) in the case of direct real estate investments by foreign SPVs.
Based on the past practice of the Polish tax authorities - acquisition of real property via a foreign entity had been expected to create FE for VAT purposes of such an entity in Poland. This had been due to the fact that the foreign SPV has sufficient technical infrastructure and intends to operate in Poland on a permanent basis (rendering of lease services in the coming years). Such a standpoint of the Polish tax authorities had been mainly based on the CJEU judgment in the Welmory case (C-605/12).
The above could have potential implications e.g. (i) for the tax office competent for VAT registration / settlements or (ii) for invoicing certain intangible services not directly related to the Property (if any, both for selling and purchasing entity).
However, we note that two recent CJEU judgments (i.e. Titanium case; C-931/19 and Berlin Chemie case; C-333/20) may impact the position of the Polish tax authorities as they may potentially give arguments to claim that foreign SPV (not having own personnel in Poland and outsourcing property management) should not be considered as having FE in Poland for VAT purposes.
In such a case, rent and service charges should still be taxed with Polish VAT and reconciled by foreign SPV being registered VAT taxpayer in Poland. The situation with (re)charges of utility cost would be more vague.
On the input VAT side, potential lack of the foreign SPV’s FE in Poland should not impact recoverability of input VAT resulting from acquisition of the real property by this entity. However, in case of acquisition by a foreign SPV of services related to conducting business activity in Poland but not directly related to real property located in Poland (for instance various advisory services) place of supply of such services may be seen as the country where foreign SPV has its seat and, therefore, such services would not be subject to VAT in Poland but in the country of residence of a foreign entity, based on the reverse charge mechanism. If recoverability of input VAT in Poland is questioned, outstanding tax liability could be assessed (along with late payment interest and additional VAT sanction up to 30% of the outstanding VAT liability).
In case of other services acquired in Poland by foreign SPV that are neither directly related to real property located in Poland nor to business activity conducted in Poland as such, such services should generally not be subject to the Polish VAT irrespective whether foreign SPV has or does not have FE in Poland, as such services would be deemed provided to the foreign SPV’s headquarter (i.e. should be VATable in the country of foreign SPV’s seat).
Please note that much more severe consequences in terms of VAT reconciliations might occur in case the tax authorities decide to de-register foreign SPV from VAT in Poland based on the grounds that foreign SPV does not have FE in Poland. This would impact - both, the output VAT as well as input VAT reconciliations performed by foreign SPV in Poland. Nevertheless, in our view, the Polish tax authorities do not have sufficient formal basis to deregister foreign SPV from the Polish VAT system. However, we may not fully exclude such risk although we assess it as very low.
For clarity, this is not yet an impending issue. However, please note that the Polish tax authorities already referred to the Titanium case while analyzing jurisdiction of the tax office for one of our Clients during VAT refund proceedings, though, ultimately they seem to have relented on this point. Moreover, the CJEU verdicts regarding FE matter have received some publicity (we are aware of recent press articles openly discussing that Polish tax authorities should rethink their approach to FE). Also, we are aware of recent verdict of Supreme Administrative Court (dated 19 May 2022, no. I FSK 968/20), which based on press release (the official written justification is not yet available) referred to the Berlin Chemie case, pointing out that if foreign company uses technical and personnel resources of the Polish company, as if it were its own - it can be concluded that the foreign company has a structure that it is characterized by sufficient constancy in terms of personnel and technical resources in Poland.
Considering the above, we feel that this issue may become relevant in the near future and would recommend to look into this in detail to assess potential impact and availability of possible approaches in the future.
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