- VAT on compensation for suspension or reduction of electricity production
- Classification of the delivery and installation of an energy storage
- Does the cost of leasing land for a photovoltaic farm constitute a tax deductible cost?
- Settlement of guarantees of origin in the costs of the previous tax year
- Photovoltaic farm as an organised part of a company?
- Connection fee – in tax deductible costs according to general rules or proportionally as a cost of production of a fixed asset
- Biogas facilities under CIT – interpretation doubts
1. VAT on compensation for suspension or reduction of electricity production
Financial compensation to RES electricity producers for forced suspension or reduction of production is subject to VAT. Doubts were also raised by taxpayers about the possible moment of tax liability and the taxable base.
These issues were resolved by the Director of National Fiscal Information in an individual tax ruling of 15 October 2024, mark: 0111-KDIB3-1.4012.414.2024.1.IK. In order to receive compensation, the producer must submit a corresponding application to be accepted by the Operator. The compensation is paid on the basis of the Settlement Information. Prior to this, the producer has no certainty regarding the award of compensation or its eventual amount. Therefore, the authority confirmed that the tax liability for it arises on the date the producer receives the Settlement Information. In turn, the taxable base for VAT is the actual value of the compensation awarded to it.
There is therefore no link between the energy not produced and the amount of compensation. The production of energy and the suspension of production cannot occur simultaneously and have different purposes. Therefore, compensation as remuneration for a separate provisions should be subject to a VAT rate independent of that for the sale of electricity. These are not interchangeable nor dependent services.
2. Classification of the delivery and installation of an energy storage
In the binding rate information issued, the authority resolved the classification of a comprehensive service of delivery and installation of energy storage both in terms of PKWiU (Polish Classification of Goods and Services used for certain tax purposes) and VAT taxation.
At the request of the taxpayer, the Director of the National Fiscal Information (hereinafter: ‘the Director of the NFI’) classified a complex service of delivery and installation of an energy storage, which would be connected to a renewable energy source installation complex. The taxpayer argued that due to the complexity of the installation process, the sale of the energy storage unit alone would not fulfil its purpose. This is because it would be impossible for a person without expertise, skills and tools to safely install it. This, in turn, would make it impossible to benefit from the energy storage and would render its purchase meaningless. It would be artificial to separate these services as they fulfil a single economic purpose. It is therefore a single comprehensive service in which the installation service is the dominant element. It is the one that most affects the ability to benefit from the goods. Therefore, according to Binding Rate Information mark: 0111-KDSB1-1.440.170.2024.4.PK of 29 July 2024, the relevant code for such services is PKWiU code 33 SERVICES OF REPAIR, MAINTENANCE AND INSTALLATION OF MACHINERY AND EQUIPMENT.
Regarding VAT, the taxpayer’s position was that the reduced rate of 8% applicable to the supply, construction, renovation, modernisation, thermo-modernisation, alteration or maintenance work on buildings or parts thereof classified as construction covered by the social housing programme pursuant to Article 41(12)(1) of the VAT Act should apply. However, the Director of the NFI did not agree with such classification due to insufficient demonstration of the classification of the building in which the service was to be performed. In the opinion of the authority, the documents confirming it cannot be replaced by a statement of the taxpayer. Therefore, in this case, the appropriate rate of VAT is 23%, pursuant to Article 41(1) in connection with Article 146ef(1)(1) of the VAT Act.
3. Does the cost of leasing land for a photovoltaic farm constitute a tax deductible cost?
Contrary to the standpoint of the taxpayer, who wished to account for them in the CIT on an ongoing basis, the Director of the National Fiscal Information indicated the cut-off date for such classification in an individual tax ruling of 18 October 2024, mark: 0111-KDIB1-3.4010.427.2024.1.JG. They acknowledged that these may be costs classified as a tax deductibles at the time they are incurred, but only after the photovoltaic farm has been put into operation – in which case Article 15(4d) of the CIT Act would apply.
Prior to the handover of the fixed asset for use, incurring the costs of the lease is necessary for the construction of the photovoltaic farm on the land in question to be possible in the first place. Therefore, the costs incurred for it are directly related to the execution of the investment. Consequently, pursuant to Article 16g Section 4 of the CIT Act, they constitute the cost of production of a fixed asset and increase its initial value. This, in turn, is the basis for making depreciation write-offs, included in tax deductible costs.
Therefore, the classification of the cost of leasing land for a photovoltaic farm depends on the moment when this fixed asset is put into use. Until the moment it is put into use, it is included in its initial value, on the basis of which depreciation is deducted. On the other hand, from that date onwards, the cost of the lease is recognised as a tax deductible cost at the time it is incurred.
4. Settlement of guarantees of origin in the costs of the previous tax year
Under certain conditions, it is possible to settle the purchase of a guarantee of origin as an expense incurred in a prior tax year.
The purchase, possession and redemption of a guarantee of origin (hereafter: ‘ GO’) is an essential part of the green energy producers’ business. This document confirms that a given amount of electricity injected into the grid has been generated in a renewable energy source installation. It allows for the establishment of more favourable conditions for the sale of such energy and is required by the provisions of the Energy Law, so it is undisputedly a deductible cost. However, the process of purchasing GPs can be time-consuming – the President of the Energy Regulatory Office can issue them up to 30 days following the production of the electricity covered by the application. In the case at hand, the uncertainty was the settlement of the purchase at the turn of the fiscal year – when the GO was issued in January, but on the basis of an application covering energy sold in December. While on the one hand the payment is already made in the following year, the energy was actually produced in the closed year.
In the individual tax ruling of 29 September 2024, mark: 0114-KDIP2-2.4010.390.2024.1.KW, the Director of National Fiscal Information resolved this issue in accordance with the stance indicated by the taxpayer. In doing so, they took into account the argumentation of the applicant, who indicated that the purchase of the GP was made in the new year, albeit before the formal closure of the books for the previous year and the preparation of the annual CIT return. This expenditure made it possible to generate income from the sale of electricity in the previous tax year and is therefore closely linked to it. Because of this connection and the timing of the incurrence of the tax deductible cost prior to the filing of the financial statements, the tax authority confirmed that it should be settled in the prior tax year.
5. Photovoltaic farm as an organised part of a company?
The classification of a photovoltaic farm as an organised part of a company is relevant in many tax aspects. However, it is not clear-cut and depends on the particular factual circumstances in each case.
The Director of the National Fiscal Information (hereinafter: ‘the Director of the NFI’) has expressed views on this issue, inter alia, in the interpretations of 27 August 2024, mark: 0114-KDIP1-1.4012.426.2024.2.EW and of 7 November 2024, mark: 0111-KDIB1-1.4010.486.2024.4.AW.
In the first case, the photovoltaic farm was only a fixed asset under construction for the producer. It was not built with the intention to use it for own business activities, but rather to be sold once the construction was completed. Therefore, it did not have the means or human resources to function independently, nor was it financially separate. Therefore, the authority held that, in such circumstances, it was not an organised part of an enterprise (hereinafter: ‘OPE’) and, in connection with its sale, the taxpayer – the purchaser – was entitled to reduce the amount of output tax by the amount of input tax.
The second ruling concerned the impact of the separation of a photovoltaic farm from one company to a new one on the companies’ ability to apply a lump sum on corporate income (so-called ‘Estonian CIT’). The taxpayer sought to demonstrate that the farm subject to the separation was a OPE, since the newly established company would not have to make additional expenditures in order to use it for its intended purpose. However, the Director of the NFI adopted an approach favourable to taxpayers, finding that in order to assess the possibility of continuing to benefit from this preference, it is irrelevant whether the set of assets separated from the company constitutes an organised part of the company. All that matters is whether both entities (the company being divided and the one to which the separated components are transferred) are covered by the lump-sum tax on corporate income.
On the other hand, in the individual tax ruling of 18 October 2024, mark: 0111-KDIB3-3.4012.378.2024.2.JSU, the Director of the NFI resolved the issue of the recognition of the Energy Storage Department, which was separated from the company, as OPE. Despite the applicant’s extensive argumentation, the Director of the NFI noted that at the time of the separation, the department would still be under construction. Only its completion will allow it to function independently. Therefore, in order for a division of an enterprise to be considered as OPE, its condition at the time of the related activity is also relevant.
6. Connection fee – in tax deductible costs according to general rules or proportionally as a cost of production of a fixed asset
The Director of the National Fiscal Information (hereinafter: ‘the Director of NFI’) has dispelled doubts regarding the method of accounting for the fee for connecting an electrical installation (such as a photovoltaic or wind farm) to the grid.
A cost whose tax classification can be problematic is the fee for connecting a RES farm to a power grid. It is closely related to the economic activity of selling energy from the connected installation. However, in the opinion of the Director of the NFI in the individual tax ruling of 9 August 2024, mark: 0111-KDIB1-1.4010.332.2024.1.SH, it does not meet the conditions for inclusion in the costs of production of a fixed asset. According to the authority, the connection fee admittedly allows the farm to operate as intended, but it does not contribute to its creation. Therefore, it is not directly related to the construction process and does not affect its initial value. In contrast, the expense remains linked to the revenue from the sale of electricity. Because of this, the fee incurred for the energy connection should be included in the tax deductible costs under the general rules in accordance with Article 15(1) of the CIT Act.
7. Biogas facilities under CIT – interpretation doubts
The Director of the National Fiscal Information (hereinafter: ‘the Director of NFI’) confirmed the application of a 10% depreciation rate for biogas plants. They also acknowledged the possibility of recognising income from the sale of energy from a biogas facility as income from a qualified intellectual property right if produced in accordance with a technology that is the subject of a patent application.
The above stance was presented as an aftermath of applications submitted by taxpayers operating biogas facilities. In the tax ruling of 11 June 2024, 0111-KDIB1-1.4010.222.2024.1.BS, the Director of the NFI did not question the position of the taxpayer that the biogas facility should be classified, on the basis of the Classification of Fixed Assets Ordinance, in group 2, subgroup 21, type 211 ‘cables for internal technological networks’. Taking this into account, they confirmed the correctness of applying to the biogas facility, for CIT purposes, depreciation at a rate of 10% per annum.
On the other hand, the taxation ruling of 4 November 2024, mark: 0111-KDIB1-3.4010.555.2020.11.JKU, concerned, inter alia, the possibility to benefit from the IP Box preference when selling energy from biogas facilities. However, this referred only to the income from the qualified IP itself, i.e. the difference resulting from higher revenues or lower costs due to the use of the technology covered by the patent. The authority only recognised the applicant’s position pursuant to the implementation of the judgment of the Provincial Administrative Court in Poznań. In the original ruling, the Director of the NFI did not agree with the taxpayer’s position. However, the taxpayer took legal action, thanks to which they obtained confirmation of the application of an approach more favourable to them.