1. In-kind contribution of real estate between entities in a VAT group
2. Landmark CT verdict on real estate tax – soon a new definition of a structure
3. Determination of the initial taxable value for the building revenue tax
4. Tax from commercial leases
5. Maximum rates in real estate tax in 2024
6. Faster depreciation for municipalities with high unemployment rates
7. Withdrawal of real estate from a company – is it always subject to VAT?
8. Refund of an overpayment of real estate tax – how will it affect income in CIT?
9. Recognition of success fees and flat-rate remuneration for commercialisation services as deductible costs under CIT

1. In-kind contribution of real estate between entities in a VAT group

An in-kind contribution pursuant to the CCC¹ may be used to create or increase the company’s assets. It confers the right to participate in the company’s profits. The subject of an in-kind contribution may be money, goods, rights, skills and technical or professional abilities. Making an in-kind contribution to a company meets the definition of a supply of goods or provision of services for consideration from the VAT Act². However, is the in-kind contribution always subject to VAT? Let us look at an interesting tax ruling from July 2023.

When goods are the subject of an in-kind contribution and when the transaction results in the transfer of the right to dispose of those goods as an owner, we are dealing with a supply of goods for consideration. In the situation presented by the taxpayer in the application for a tax ruling, when it concerns the establishment of a VAT group, supplies and services provided within the VAT group will not constitute transactions for VAT purposes, i.e. the supply of goods or services within the group will not be subject to VAT. On the other hand, in transactions with entities outside the VAT group, the VAT group will be deemed to be a single taxpayer. This was recognised by the Director of the KIS (National Fiscal Information) in a tax ruling issued on 13 July 2023 with case number 0113-KDIPT1-2.4012.360.2023.2.KW.
It accepted the applicant’s position and pointed out that not every activity constituting a supply of goods or provision of services is subject to VAT. In order for an activity to be subject to said tax, it must be performed by a taxpayer.
The issue and problems related to in-kind contributions are widely present in corporate law, as the example of this tax ruling shows, in-kind contributions will not always entail VAT obligations. Persons conducting business activities and having doubts related to the taxation of in-kind contributions within a VAT group are welcome to contact us.

2. Landmark CT verdict³ on real estate tax – soon a new definition of a structure

On 4 July 2023, a landmark judgment of the Constitutional Tribunal on the definition of a structure for real estate tax purposes was passed. As a result of this judgment, the definition of a structure will cease to apply 18 months after its publication in the Journal of Laws (this occurred on 10 July 2023 under item 1313). This will be a fundamental change in the understanding of a structure for tax purposes.

We recently wrote about the judgment on our blog at the link: Landmark CC ruling on real estate tax – the end of problems with the definition of a structure?

The definition of a structure is significant for entrepreneurs who determine the amount of real estate tax based on it. The change in the very definition of a structure after the judgment of the Constitutional Tribunal will certainly involve a change in the manner in which real estate tax is calculated. The legislator now has the opportunity to base the definition of a structure on the tax act and not, as until now, on the Construction Law. This was one of the objections raised by experts and the CT regarding the violation of the Constitution of the Republic of Poland.
Particularly noticeable in the Court’s reasoning is the reference to a violation of Article 217 of the Polish Constitution, which states that the structural elements of a tax, and first and foremost the subject of taxation, must be defined by a tax act. So far, this has been determined by reference to the Construction Law, which has caused many legal and factual problems.
As we wait for the new definition of a structure, we can expect quite a bit of change in real estate taxation, which is particularly relevant for those running a business in Poland. We follow the tax changes in this area and the financial implications that the new definition of a construction in real estate tax will cause. If you have any questions, please do not hesitate to contact us.

3. Determination of the initial taxable value for the building revenue tax

The Supreme Administrative Court (NSA)⁴ ruled in a recent judgment that the taxable base of revenue from buildings is not reduced by depreciation write-offs already made. This is an unequivocally unfavourable position, but consistent with the approach taken by tax authorities and administrative courts in such cases.

The dispute concerned Article 24b(3) of the CIT Act⁵, respectively Article 30g(3) of the PIT Act⁶. It follows that revenue from a building is the initial value of that building as a fixed asset as determined on the first day of each month resulting from the records kept. The taxpayers believed that, in light of this provision, the initial value of a building is variable. They concluded that it could be reduced by depreciation write-offs made in previous months. This would mean that it could be reduced from month to month.
The Director of the KIS disagreed with this position of taxpayers at the stage of the application for a tax ruling. It stated in the tax ruling issued on 6 November 2019, case number 0111-KDIB1-1.4010.374.2019.1.NL, that in light of Article 24b(3) of the CIT Act, the initial value of a building should be determined on the first day of each month, disregarding depreciation write-offs, but taking into account, for example, improvements. The initial value of a fixed asset is used to calculate depreciation write-offs, and they do not, as a rule, reduce this value. It is different in the case of improvements, because they increase the initial value of a fixed asset under Article 16g(13) of the CIT Act.
The judgment of the WSA⁷ was upheld by the NSA in its judgment of 9 August 2023 case no: II FSK 214/21. It confirmed that the tax base on revenue from buildings should not be reduced by depreciation write-offs. The NSA agreed with the tax authority that if it agreed with the companies’ argumentation favourable to taxpayers, the tax base would be reduced below PLN 10 million.
This would result in no tax on revenue from buildings and would be contrary to the objectives of the tax act. The ratio legis arising from the act therefore leaves no doubt that the provisions should be interpreted in this direction when taxing revenue from buildings.
The financial consequences of this unfavourable position of the tax authorities and administrative courts are invariably negative for taxpayers. If you have any questions relating to this tax, please do not hesitate to contact us.

4. Tax from commercial leases

On 12 July 2023, an important judgment of the Supreme Administrative Court was handed down on the issue of real estate tax on leases. The court shared the argumentation favourable to taxpayers and stated that the increased real estate tax rate provided for business activities cannot be applied to both a building and a dwelling in which residential needs are met. This is a judgment breaking the long-standing unfavourable line of jurisprudence of the Supreme Administrative Court and the tax authorities towards taxpayers with regard to tax on commercial leases.

The case concerned a railway entrepreneur and the question of how to tax land after a decommissioned railway line. On the occasion, the Supreme Administrative Court took a position on the issue of the appropriate real estate tax rate for flats intended for long-term rental. Relying on Article 1a(2a)(1) of the Local Taxes and Fees Act, the court of cassation held that land, buildings and structures associated with business activities do not include residential buildings and land associated with them.
According to the Supreme Administrative Court, those parts of a residential building that are used for residential purposes cannot be considered to be for business purposes. The court considered it important in this respect, first and foremost, whether residential needs are satisfied in the building or premises. The judgment of the NSA case no: III FSK 250/23 is legally binding and differs from the hitherto approach of administrative courts on the issue of real estate tax on commercial lease. Perhaps it will change the approach of other courts on the issue of tax on commercial leases.
Taxpayers can look forward to a new, favourable trend by the tax authorities in real estate tax on rentals. It is to be hoped that this will remain an established practice of the tax authorities in Poland.

5. Maximum rates in real estate tax in 2024

On 21 July 2023, an notice was issued by the Minister of Finance on the upper limits of specific rates of local taxes and fees for the year 2024 (Journal of the Republic od Poland – Monitor Polski 2023, item 774). Due to high inflation, record-breaking rates in real estate tax for 2024 may await taxpayers. The Local Taxes and Fees Act regulates precisely their maximum amount. However, the final decision remains in the hands of the municipal council.

The determination of the actual real estate tax rates for a given year is the responsibility of the municipal council. It is it that adopts a resolution in which it determines the real estate tax rates. However, they may not be higher than the maximum rates set for a given year by the Minister of Finance. In 2024, the maximum real estate tax rates that may be adopted are significantly higher than in previous years.
The maximum property tax rates in 2024 can be divided into rates on land, on buildings and on structures. In the case of land in 2024, they may amount to, depending on their use:

• on land connected with business activities, regardless of its classification in the land and building register – PLN 1.34 per 1 m² area,
• on land under standing surface waters or flowing surface waters of lakes and artificial reservoirs – PLN 6.66 per 1 ha of area,
• on other land, including that occupied for conducting paid statutory public benefit activity by public benefit organisations – PLN 0.71 per 1 m² area,

And the maximum real estate tax rates for 2024 are for buildings or parts thereof:

• residential – PLN 1.15 per 1 m² of usable area,
• related to the conduct of business activities and on residential buildings or parts thereof occupied for the conduct of business activities – PLN 33.10 per 1 m² of usable area,
• other, including those occupied for the conduct of paid statutory public benefit activity by public benefit organisations – PLN 11.17 per 1 m² of usable area.

In the case of the tax on structures, the percentage rate is fixed at 2% of the value of the structure as determined in accordance with Article 4 of the Local Taxes and Fees Act.
When comparing the maximum property tax rates for 2023 with those awaiting the taxpayer in 2024, it is easy to conclude that they could be around 15% higher. This is due to the poor financial condition of local governments in Poland, which may apply rates at this level to make up for budget shortfalls. This may be felt most acutely by entrepreneurs who pay high real estate tax on business-related property.
It is already almost certain that rates will increase by 15% in 2024 in Warsaw, as it is an established practice in that city that the increase is analogous to the inflation rate. Regarding the increase in property tax rates in Poznań in 2024, the decision has not yet been made. There is no decision yet.
Record increases in real estate tax will affect almost every taxpayer. This is closely linked to high inflation in Poland. The financial impact will be felt by all real estate tax payers.

6. Faster depreciation for municipalities with high unemployment rates

The amendment introduced on 17th August 2023 to the PIT Act and the CIT Act is intended to assist the sector of small and medium-sized enterprises (SMEs), as defined by the Entrepreneurs’ Law, which operate in municipalities with a high unemployment rate. The SME sector comprises, according to various criteria, more than 90% of entrepreneurs operating in Poland. Municipalities expected to qualify for this favourable depreciation are those with low per capita income.

The amendment introduced on 17th August 2023 to the PIT Act and the CIT Act is intended to assist the sector of small and medium-sized enterprises (SMEs), as defined by the Entrepreneurs’ Law, which operate in municipalities with a high unemployment rate. The SME sector comprises, according to various criteria, more than 90% of entrepreneurs operating in Poland. Municipalities expected to qualify for this favourable depreciation are those with low per capita income. Entrepreneurs will be able to benefit from a reduction in the depreciation period for non-residential buildings and structures from 40 years to either 5 or 10 years – depending on the unemployment rate in the municipality and the municipality’s simultaneous fulfilment of the low-income criterion.
Entrepreneurs will be able to shorten the depreciation period by applying individual rates when the fixed asset is located in a municipality located in a county with an average unemployment rate:

• between 120% and 170% of the average unemployment rate in the country – the depreciation period of the asset will be a minimum of 10 years,
• above 170% of the average unemployment rate in the country – the depreciation period of the asset will be a minimum of 5 years.

The fulfilment of these conditions is determined for the month in which one of the following events occurred:

• the decision on the building permit has become final,
• the period for raising an objection to a construction notification has expired or a certificate has been issued stating that there are no grounds for raising such an objection,
• the fixed asset is entered for the first time in the records of tangible and intangible assets,
• the preference is intended to be de minimis aid granted to the extent and under the conditions laid down in the acts of the EU law on de minimis aid. It is an unquestionable chance to stimulate economic activity in municipalities, less developed regions and those with unemployment problems. In the opinion of the initiators of the amendment, it is supposed to give a development impulse in poorer parts of Poland.

The introduction of preferences may result in greater investor interest in doing business in less developed regions of Poland. We invite investors and entrepreneurs to contact us.

7. Withdrawal of real estate from a company – is it always subject to VAT?

The withdrawal of a non-residential real estate from the entrepreneur’s business activity to private assets is not always subject to VAT. The requirement is that this real estate is intended for further rental. This does not meet the criteria for the concept of a gratuitous transfer of goods for the taxpayer’s personal purposes within the meaning of Article 7(2) of the VAT Act- it was confirmed by the Director of the KIS in a tax ruling of 24 August 2023 (case number 0114-KDIP1-3.4012.417.2023.1.PRM).

A businessman who, in the course of his business activities, had a real estate with non-residential buildings on it, applied for a tax ruling to the Director of the KIS. He partly used it in his own business and partly rented it out. He deducted VAT on the expenditure incurred for acquisition of this real estate and the erection of the buildings, and during their use – on expenditure incurred.
The applicant’s position in the case was that, since the real estate would continue to be rented (it would be used for taxable activities), he would not have to pay VAT on its withdrawal from business. He believed that, as a result, he would also not have to adjust the input VAT already deducted.
The Director of the KIS confirmed the entrepreneur’s position based on the facts presented. The tax authority explained that regardless of whether the lease will be conducted as part of business activity or as a separate source of income within the meaning of the PIT Act, if it will be conducted continuously for profit, it will constitute a business activity for VAT purposes under Article 15(2) of the VAT Act. The Director of the KIS confirmed that the entrepreneur will not be obliged to correct the deducted VAT.
The tax authority has addressed this issue in an interesting way in VAT. For taxpayers, it is a favourable position of the tax authorities, who have stated that there is no VAT in this type of situation.

8. Refund of an overpayment of real estate tax – how will it affect income in CIT?

An overpayment of real estate tax will constitute tax income for the company to the extent that the real estate tax was previously included in tax-deductible costs. The overpayment may serve to settle tax arrears, current tax liabilities and future tax liabilities, i.e. liabilities that have not yet arisen at the time of its occurrence.

This was recognised by the Director of the KIS in a tax ruling of 24 January 2023, case no: 0111-KDIB1-1.4010.766.2022.1.MF. In the case of a taxpayer’s application for an overpayment to be credited against future tax liabilities, the decision in question is issued only when the future liabilities referred to in the taxpayer’s application come into existence, i.e. arise as an obligation of the taxpayer to pay tax in a certain amount, at a time and in a place specified by the tax law.
Under the current legislation, it is not possible to set off an overpayment against future tax liabilities until the tax liability has been transformed into a chargeable tax liability. Therefore, it is only at this point that it is possible to demand satisfaction of the liability.
Thus, where an overpayment is set off by the tax authority against future tax liabilities, the date of receipt of the overpayment should be considered as the due date of the future liability into which the overpayment is to be converted.
The tax ruling discussed here is an example of an important and practical issue for any business person – overpayment of taxes. Please do not hesitate to contact us if you have any questions regarding overpayment of taxes.

9. Recognition of success fees and flat-rate remuneration for commercialisation services as deductible costs under CIT

On 5 October 2023, an interesting ruling by the Supreme Administrative Court on a flat-rate remuneration for commercialisation services to a contractor in the form of a so-called success fee was issued. This is a form of remuneration increasingly used in practice by entrepreneurs to encourage contractors to be active. However, the appropriate recognition of such expenses as tax deductible costs under CIT raises numerous doubts.

The Supreme Administrative Court, in a judgement of 5 October 2023, case no: II FSK 283/21, looked into the issue of success fees on the grounds of deductible costs in corporate income tax. The case concerned a company from the real estate sector. It applied for a tax ruling asking how to account for expenses incurred for remuneration in the form of a so-called success fee to a professional real estate agent.
The tax authority confirmed that such expenses were a tax cost, but a dispute arose as to how to account for such costs. According to the tax authority, such costs were not strictly related to real estate lease agreements and could not be recognised as such. According to the officials, remunerations such as success fees are paid to the contractor in strict connection with the provision of services to acquire tenants.
The applicant company challenged the unfavourable tax ruling. In the first instance, the WSA in Szczecin agreed that the disputed expenses relate to a period exceeding the tax year and it is not possible to determine what part of them relates to a given tax year. It therefore held that they should constitute costs in proportion to the length of the period to which they relate. After the tax office appealed against the taxpayer’s favourable judgment, the court of cassation stated that, although such a form of remuneration is directly related to the obtained revenue, in the remaining part of the judgment it took a different stance than the WSA.
Pursuant to Article 15(4e) of the CIT Act, the court held that such remuneration should be accounted for as at the date on which the cost is recognised in the books of account (booked) on the basis of the invoice (bill) received. Such costs are directly related to obtaining revenue and should be accounted for when incurred. It shared the view of the tax authorities that these costs do not relate to real estate lease agreements or the time for which these agreements were concluded. Therefore, they cannot be costs related to the lease provided. It is a non-recurring expense, strictly related to the service of obtaining tenants, customers, and should be accounted for as a deductible expense when incurred.
The NSA’s judgment is final and appears to be an admission that the tax authorities are right to view the so-called success fee as a deductible cost for corporate income tax purposes.
Supplementary remuneration in the form of a success fee is increasingly popular in the legal market, while the financial implications seem to be ambiguous. In case of questions, we invite entrepreneurs to contact us.

^{[1] Act of 15 September 2000 Commercial Companies Code (Journal of Laws 2000, No. 94 item 1037), hereinafter: the CCC.
[2] Act of 11 March 2004 on Value Added Tax (Journal of Laws 2004, No. 54 item 535), hereinafter: the VAT Act.
[3] Constitutional Tribunal.
[4] Supreme Administrative Court.
[5] Act of 15 February 1992 on Corporate Income Tax (Journal of Laws 1992, No. 21 item 86), hereinafter: the CIT Act.
[6] Act of 26 July 1991 on Personal Income Tax (Journal of Laws 1991, No. 80 item 350), hereinafter: the PIT Act.
[7] Provincial Administrative Court.}