1. The President of the Republic of Poland signed the Act amending the real estate tax
  2. Real estate management as a comprehensive service for VAT purposes
  3. VAT implications of the resale of construction services purchased from a ‘further subcontractor’
  4. Remuneration paid by a family foundation for property rental management services as potential hidden profits in CIT
  5. Converting real estate into shares in a corporation – what are the CIT implications?
  6. Electrical equipment and real estate tax
  7. How to correctly classify land with a structure for VAT?
  8. Real estate taxation of a ski lift

1. The President of the Republic of Poland signed the Act amending the real estate tax

On 27 November 2024 The President of the Republic of Poland signed the Act of 19 November 2024 amending the Act on local taxes and charges – amending the real estate tax. The final form of the Act, which was passed by the Parliament, was preceded by lengthy consultations conducted by the Ministry of Finance. Key elements of the signed Act:

Under the new legislation, it is possible to postpone the deadline for filing the 2025 real estate tax return until 31 March 2025, if:

The real estate tax changes will enter into force on 1 January 2025, after a 30-day vacatio legis period.

2. Real estate management as a comprehensive service for VAT purposes

The Voivodship Administrative Court (hereinafter: “VAC”) in Gdańsk, in the judgement of 23 July 2024, (ref. no I SA/Gd 415/24) ruled that day-to-day maintenance and technical emergency services provided as part of real estate management are ancillary services, supporting the provision of management services. It therefore benefits from VAT exemption.

A residential property management company requested a ruling, claiming that the services it provides, including maintenance and technical emergency services, are elements of a comprehensive property management service and therefore exempt from VAT. The Director of the National Fiscal Information in a ruling dated 2 April 2024 (mark: 0114-KDIP1-1.4012.80.2024.1.AWY) considered this position to be incorrect, arguing that the said maintenance services constitute separate services subject to VAT. The company appealed the ruling and the VAC in Gdańsk in a ruling of 23 July 2024 (ref. no. I SA/Gd 415/24) overturned this ruling, stating that maintenance and standby services are an integral part of the real estate management service, which as a whole enjoys VAT exemption. According to the justification, in the VAC view, the activities provided constitute a composite service consisting of a number of activities in which the main service is the residential property management service, while the services consisting in the performance of day-to-day maintenance and standby technical services are ancillary services which are not an end in themselves but contribute to the full use and performance of the main service. Therefore these ancillary services are not activities in their own right, but make up a comprehensive residential property management service on a contract basis and share the legal fate of the principal service, and are subject to value added tax on the same basis as the principal service, which in the present case means exemption from value added tax. Thus, the view of the tax authority, which considered these services to be separate and subject to VAT, proved to be incorrect. The VAC in Gdansk sided with the taxpayer, but the judgement is not final.

3. VAT implications of the resale of construction services purchased from a ‘further subcontractor’

The resale of construction services by companies acting in a consortium is subject to VAT at the rate of the original invoice. The companies retain the right to deduct VAT from invoices issued by further subcontractors, provided that the services are related to taxable activities.

The Director of the National Tax Information in a ruling of 12 July 2024 (case number: 0112-KDIL1-1.4012.298.2024.2.HW) addressed the VAT implications of the resale of construction services purchased from a ‘further subcontractor’. The authority pointed out that companies acting as subcontractors within a consortium that purchase construction services for other companies in the consortium must be mindful of the key tax regulations on the re-invoicing of these services. If a company purchases construction services on its own behalf, but for the benefit of other companies in the consortium, then under Article 8(2a) of the VAT Act, the company first acts as a service recipient and then as a service provider. The re-sale of construction services will therefore be treated as a supply of services for consideration, which is subject to VAT at the rate applicable to the service in question. However, the addition of a margin when re-invoicing services does not affect the VAT rate the company should apply. The tax authority indicated that the VAT rate on the invoice should be the same as on the original invoice, provided that it was applied correctly – if the rate is incorrect, the company is required to correct it and apply the appropriate VAT rate. A company re-invoicing construction services is entitled to deduct VAT from invoices issued by further subcontractors. The condition to benefit from the deduction is that the re-invoiced construction services are related to taxable activities, i.e. resale of construction services. The resale of construction services within a consortium is therefore subject to VAT at the rate of the original invoice, regardless of the addition of a margin. However, it should be remembered that the right to deduct VAT is granted insofar as such services are related to taxable activities.

4. Remuneration paid by a family foundation for property rental management services as potential hidden profits in CIT

As recognised by the Voivodship Administrative Court (hereinafter: “VAC”) in Wrocław in its judgment of 22 August 2024 (ref. no I SA/Wr 295/24), the remuneration for the provision of real estate lease management services paid by a family foundation to an affiliated company will not constitute a benefit in the form of hidden profits on CIT grounds.

The applicant was a family foundation which indicated that it would be the decision-maker in real estate management services. The foundation intended to enter into a contract with a CIT-taxable subsidiary for the provision of lease management services. It has exercised authority and control over it; the manager is a 100% subsidiary of the foundation. The applicant asked whether the remuneration paid to the manager for the provision of property lease management services would be subject to the 15% CIT rate on the part of the foundation as a benefit in the form of hidden profits? The tax authority, in a ruling, held that the purchased services of real estate lease management fall within the scope of the catalogue of services subject to CIT at the family foundation, thus they are subject to taxation at a 15% CIT rate as a benefit in the form of hidden profits. The applicant filed a complaint with the VAC against the unfavourable ruling. The VAC shared the arguments of the applicant and ruled that the disputed service of administering the lease of real estate, has nothing to do with the scope of the concept of management and control. The court shared the applicant’s view that the monitoring and handling of payments does not relate to control activities, but to real estate administration activities, as this is an activity closely related to real estate leasing. In its reasoning, the VAC stressed that not every activity that leads to the realisation of an economic objective or every effort that also involves other entities (service providers) can be considered as management. The term ‘management’ cannot therefore be interpreted so broadly. The occurrence of the word management in the name of the service cannot prejudge the fact that the service already for this reason alone falls within the catalogue of services under Article 24q(1a)(3)(a) of the CIT Act. It is worth paying attention to this judgment, especially after the announcements of the Ministry of Finance about the upcoming changes to the family foundation. The judgment is not final.

5. Converting real estate into shares in a corporation – what are the CIT implications?

In judgment of 20 August 2024 (ref. no III SA/Wa 1540/24), the Voivodship Administrative Court (hereinafter: “VAC”) in Warsaw, court shared the position of the tax authority, stating that the transaction of exchanging assets in the form of real estate for shares in a capital company constitutes a form of disposal of real estate for a consideration and the acquisition of shares in a capital company.

The applicant is the owner of the real estate, and is entering into discussions to change one of its assets – the real estate it has leased. Another entity is interested in obtaining this real estate and thus entering into the rights of the lessor. In return, it offers to transfer ownership of the shares in the capital company. The applicant therefore posed the question to the Director of the National Tax Information (hereinafter: ‘DNTI’) whether the planned asset swap is a revenue-generating event, or whether, due to the swap of the taxpayer’s asset, the revenue-generating tax event which will only be the future sale of the asset obtained as a result of the swap? DNTI held that, from a tax point of view, as a result of the completion of the exchange transaction in question, there will be tax revenue on the part of – the seller of the property. The value of this income is equal to the value of the property being sold, this price should correspond to the market value of the property being sold. The applicant challenged the ruling with the VAC, but the latter shared the authority’s position. In its justification, it pointed out that in the case of an asset swap, the form of payment is obtaining another thing or right in exchange for the given thing. This confirmed the view, which is unfavourable to taxpayers, that the exchange of real estate for shares in a capital company constitutes a disposal of real estate for consideration, which generates tax revenue on the part of the company corresponding to the market value of the real estate disposed of. The judgment of the VAC in Warsaw is final and binding.

6. Electrical equipment and real estate tax

The Supreme Administrative Court (hereinafter: ‘SAC’) ruled in its judgment of 13 March 2024 (ref. no III FSK 3953/21) that switchgear, transformers and other power equipment should not be classified as a single structure together with a power line.

The company applied for a refund of the overpayment of property tax for 2016, arguing that electrical power equipment such as transformers and switchgear, located in the substation buildings, constitute their equipment and should not be taxed separately as structures. The tax authorities disagreed with this position, holding that these devices are elements of the electricity network and should be treated as taxable structures, regardless of their location in the buildings. The Voivodship Administrative Court in Bydgoszcz shared the position of the authorities, indicating that transformers and other equipment are an integral part of the power grid, which is a structure in accordance with Article 3(3) of the Construction Law. The SAC, in its judgment of 13 March 2024 (ref. no III FSK 3953/21), overturned the verdict, holding that power lines and equipment cannot be treated jointly as one construction object. The SAC indicated that power equipment should be considered separately, in particular in terms of its taxation as construction equipment, which requires further analysis in a re-examination.

7. How to correctly classify land with a structure for VAT?

A company intended to sell plots of land, some of which had district heating and gas mains. Also in dispute in the case was the classification of the land as developed or undeveloped for VAT purposes. In a judgement of the Supreme Administrative Court (hereinafter: „SAC“) of 23 August 2024 (ref. no I FSK 1670/20), the court of cassation held that land with a structure could be classified as undeveloped land.

The sale in question involved only land, with no transfer of ownership of structures (networks). The plots of land were not building sites, as they were not covered by a local development plan or a ongoing decision. The tax authority considered that plots of land with networks belonging to another entity were undeveloped and exempt from VAT. On the other hand, the plots with the seller’s gas networks were classified as built-up, which excluded the VAT exemption. The Voivodship Administrative Court in Kraków supported this position, stating that land on which structures are located is developed, regardless of whether the structures are subject to sale. The SAC did not support this position and stated that the mere presence of a structure on the land does not allow the land to be deemed developed for VAT purposes. The economic purpose of the transaction and whether the structures located on the purchased plot of land are of significance to the buyer must be taken into account. If the purpose of the transaction is the sale of the land itself without the transfer of ownership of the structures located on the plot, the land may be considered undeveloped, which may result in VAT exemption. The SAC stressed the need to analyse each land sale transaction, taking into account both the facts and its economic aspect. The economic purpose of the transaction is therefore crucial, and the presence of a structure does not always determine whether the land is considered developed for VAT purposes.

8. Real estate taxation of a ski lift

Taxation with real estate tax of an object such as a ski lift raises many doubts. In its judgement of 23 April 2024, the Voivodship Administrative Court (hereinafter: “VAC”) in Wrocław (ref no. I SA/Wr 854/23) decided that only construction elements of a cableway are subject to taxation of such a ski lift.

A taxpayer from the ski industry requested a ruling regarding the taxation of real estate, including ski resort infrastructure facilities. He was of the opinion that only the construction parts of the cableways and lifts should be taxed. The tax authority disagreed, claiming that the whole of the cableways and lifts constituted taxable structures. The taxpayer filed a complaint against the ruling, the case went to the VAC and then to the Supreme Administrative Court, where was finally revoked. Although the case was returned to the tax authority, a  ruling negative to the taxpayer was again issued, which resulted in a new complaint. The administrative court revoked the ruling, sharing the taxpayer’s position. In the opinion of the VAC, technical and utilitarian features alone cannot determine the qualification of the entire facility as a structure, and only the construction parts of railways and lifts, which have an auxiliary function to technical equipment, should be taxed. The judgment is not final.

According to the Act signed by the President introducing the change in real estate tax, there should no longer be any doubts regarding the taxation of ski lifts. In the Act indicates: a structure (…) a ski lift and a ski jump – only as regards their constructional parts.