In this article is presented an overview of key Polish tax items which may be particularly important for real estate Clients. We are focusing on: closing of 2022 CIT reconciliations, recent legislative and case law developments, as well as generally hot tax topics relevant for RE industry.
Extension of the deadline for annual 2022 CIT return
It is almost certain (draft resolution was published but not adopted yet) that the standard deadline for the annual 2022 CIT return (which typically was the end of March 2023) will be extended to the end of June 2023. It does not mean that all end-March compliance deadlines are automatically extended, e.g. reporting of real estate companies (please see below). Also, draft financial statements are still due within the standard deadline - there is no information about an extension in this respect.
Reporting of ownership structure of Polish real estate companies - new developments
Polish real estate companies, as well as Polish or non-Polish taxpayers holding directly or indirectly at least 5% of shares in such companies, are obliged to notify tax authorities about the ownership structure of the company. The reporting for 2022 is typically due by the end of March 2023.
To clarify the reporting scope and technicalities, on 28 February 2023 the Minister of Finance published a general tax ruling. In respect of the most controversial obligation for non-Polish shareholders (on a CIT-N2 form), the Minister seems to indicate that the obligation covers:
(i) taxpayers being direct shareholders in a real estate company or
(ii) taxpayers being indirect shareholders in a real estate company via tax transparent vehicle(s).
Although it is still not fully clear, it seems that taxpayers being indirect shareholders in a real estate company via non-transparent vehicle(s) should not be, as a rule, obliged to file a report. In our view, it is a reasonable approach which we also applied last year. In most structures on the real estate market, it allows to limit the reporting on a CIT-N2 form to a direct shareholder (assuming this direct shareholder is non-transparent), as well as not to file CIT-N2 forms by entities above such a direct shareholder. Although the ruling does not clarify all controversies, we hope the above approach will be accepted by tax authorities - new developments should be observed.
In respect of technicalities, also non-Polish taxpayers obliged to file a CIT-N2 form have to register for CIT purposes in Poland and obtain a Polish tax identification number (NIP). Additionally, a certified electronic signature must be obtained by (foreign) individuals submitting the report or a special power of attorney should be arranged for.
Action point: Consider which foreign entities in the structure will be obliged to register for CIT purposes in Poland and file the report electronically. Based on past reporting, the entire process (i.e. collection of documents, registration, obtaining the signature, reporting) can be time consuming. The registration itself can take up to 4 weeks, depending on the workload of tax authorities.
Tax-deductible depreciation of non-residential buildings - first court verdicts
Starting from 2022, tax depreciation write-offs recognized in relation to non-residential buildings cannot be higher than depreciation write-offs made for accounting purposes. This was commonly interpreted in a way that if a given entity does not depreciate buildings for accounting purposes (but rather revalues the property to fair market value), tax depreciation of such buildings cannot be deductible for CIT purposes on an ongoing basis - Polish tax authorities issued several rulings confirming such interpretation.
Nevertheless, in January and February 2023 first verdicts of District Administrative Courts regarding the new regulations were issued. In brief, the courts challenged these regulations as too vague. In verbal justifications (no written ones are available at this stage), it was raised that any limitations of tax-deductible costs are crucial for taxpayers and must be perfectly clear, while any doubts should be resolved in favor of taxpayers. As a result, the tax-deductible depreciation restrictions should not apply in current shape to taxpayers recognizing properties as investments at fair market value (hence, not subject to accounting depreciation).
Note that the verdicts are not final and can be appealed to the Supreme Administrative Court which currently needs up to 3 years to issue a final verdict. During this time there will still be uncertainty and the relevant regulations can be always amended / clarified by the legislator (this happened in Poland e.g. regarding 30% tax EBITDA earnings stripping rule when the courts started to issue verdicts in favour of the taxpayers).
As a result, in our view, currently the practical impact of the verdicts seems to be limited. Tax deduction of depreciation write-offs while applying the FMV investment approach for accounting purposes may still trigger a dispute with tax authorities, while the law can be potentially changed / clarified to the disadvantage of taxpayers from 2024.
Action point: Changing the accounting policy still seems to be a safer solution if the taxpayer would like to continue recognizing depreciation write-off as a tax-deductible cost. Alternatively, it can be considered to apply for a tax ruling confirming the approach expressed by the courts, with a risk that it will be negative at the level of tax authorities with a chance for a positive result at the court’s level; in the long run, if the regulations will be further amended, the change of the accounting policy may remain the only option.
Transfer tax treatment of real estate transactions - ECJ resolution in a Polish case
The Court of Justice of the European Union (ECJ) issued a resolution in a Polish case (no. C‑729/21) confirming that:
(i) a transfer of a going concern does not require for a purchaser to be a legal successor of a seller and the Polish VAT Law is compliant with the VAT Directive in this respect;
(ii) to qualify as a going concern, the set of transferred items does not have to cover all elements related to the going concern held by a seller, provided that the transferred items are sufficient to conduct business activities by this going concern on a standalone basis. The domestic court should decide if in the case at hand a going concern or assets on a piecemeal basis were transferred.
The resolution is important as it confirms compliance of the Polish VAT Law with the VAT Directive. In other aspects the ECJ’s standpoint seems to be similar to the one presented by the Polish Ministry of Finance in the guidelines on taxation of real estate transactions from December 2018. Still, we should wait for the verdict of the Supreme Administrative Court which asked for the ECJ resolution and see if this particular transaction will be ultimately classified as (i) covering a going concern (out of VAT scope) or (ii) assets on a piecemeal basis (subject to VAT and being the prevailing market practice). The Supreme Administrative Court verdict in favor of the outcome (i) can potentially disturb the market situation. This shows that in each transaction an individual tax ruling is strongly recommended to secure the transfer tax treatment upfront.
Autorzy:
